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CREDITS  AND  COLLECTIONS 


THE  FACTORS  INVOLVED  AND  THE 
METHODS  PURSUED  IN  CREDIT 
OPERATIONS.  A  PRACTICAL  TREA- 
TISE BY  EMINENT  CREDIT   MEN 


Collected  and  Edited  by 

T.  J.  ZIMMERMAN 


SECOND  EDITION 


THE  SYSTEM  COMPANY 

CHICAGO 

1904 


^56  6 


Copyright,  1904,  by 
The  System  Company 


PREFACE 

American  business  men  hold  that  the  only  way 
to  learn  to  do  things  is  to  do  them.  This  opinion  has 
had  much  truth  and  fact  to  justify  it,  but  it  has  been 
undergoing  a  marked  transformation  in  the  past  de- 
cade. For  men  are  coming  to  realize  that,  although 
no  one  can  learn  to  do  a  thing  by  merely  being 
told  how  it  is  done,  such  precious  knowledge 
greatly  facilitates  his  learning  how  to  do  it  when 
once  he  gets  into  practical  work.  It  affords  him  a 
strong  foundation,  barren  and  useless  in  itself,  but  a 
firm  basis  upon  which  to  build  the  structure  of  busi- 
ness experience.  Book  learning,  abstract  knowledge, 
is  like  a  fertilizer:  it  does  not,  of  itself,  produce  any- 
thing, but  it  stimulates  growth  and  advance  when  the 
live  seed,  practical  experience,  is  instilled  iij  the  soil 
of  work. 

There  is  another  feature  in  modern  commercial 
life  which  has  stimulated  the  output  of  business 
literature.  Association  for  the  accomplishment  of 
common  purposes  is  having  an  always  greater  im- 
petus, and  it  has  been  accompanied  by  another  kind 
of  co-operation — the  give  and  take  of  business  ideas 
and  knowledge. 

In  other  words,  business  men  are  realizing  that 
no  one  man  can  know  all;  that  every  man  can  make  a 
profitable  exchange  by  giving  his  knowledge  and  ex- 
perience for  that  of  others.  For  while  he  gives  the 
knowledge  of  one  man,  and  that  without  taking  any- 
thing away  from  himself,  he  receives  in  return  the 

ill 


iv  PREFACE 

Ideas  and  information  of  many.  The  business  prin- 
ciple, "that  exchange  is  the  best  which  gives  both 
parties  the  largest  possible  profit,"  has  been  found 
as  successful  in  the  exchange  of  knowledge  as  of  com- 
modities. 

These  two  tendencies  in  modern  commercial  life 
have  led  to  the  projection  of  the  "Business  Man's 
Library,"  of  which  this  book  is  the  first  volume.  The 
foregoing  analysis  of  these  tendencies  also  serves  to 
point  out  the  purpose  of  the  whole  series  and  of  this 
first  book.  It  is  to  tell  the  "how"  of  things:  the  tech- 
nique of  commercial  operations,  the  specific  processes 
and  actual  methods  necessary  for  the  accomplishment 
of  certain  work.  And  this  all  is  told,  these  processes 
are  described  and  these  methods  discussed,  by  business 
men  actually  engaged  in  this  line  of  work — men  who 
have  performed  these  acts,  who  have  originated  and 
used  these  methods,  who  know  because  they  do.  This 
series  of  books  is  intended,  therefore,  to  teach  the 
beginner  the  fundamentals  and  detailed  methods  of 
practical  business  operations,  and  to  give  him  who 
has  been  long  in  the  harness  new  ideas  for  application 
in  his  own  business. 

Literature  on  the  subject  of  credits  and  collec- 
tions is  very  meager.  This  is  due  to  the  fact  that  only 
recently  has  this  work  been  recognized  as  a  distinct 
and  worthy  department  of  business.  Mr.  P.  R  Earl- 
ing,  who  contributes  the  able  introductory  chap- 
ter of  this  book,  was  the  first  man  to  call  attention  to 
the  importance  of  this  subject,  in  his  work,  "Whom 
To  Trust,"  published  in  1890.  This  book  focused  at- 
tention upon  credits.  The  suggestions  laid  down  in 
it  were  largely  followed  and  business  houses  began 
^0  recognize  the  significance  of  credits  and  collections. 


PREFACE  T 

Mr.  Earling  carried  credits  to  a  plane  a  step  higher 
when  in  1893  he  organized,  under  the  auspices  of  the 
World's  Fair  Auxiliary  Congress,  the  congress  on 
"Credits,  Collections  and  Failures,"  of  which  he  was 
chairman.  This  congress  had  representation  from 
business  houses  not  only  of  America,  but  also  of  for- 
eign countries.  The  most  important  work  which  it 
did  was  to  stimulate  the  formation  of  credit  men's 
associations  in  the  principal  cities  of  this  country  and 
to  encourage  through  these  associations  the  dissem- 
ination of  knowledge  upon  credits  and  collections. 

"Credits  and  Collections"  attempts  to  give  a  com- 
plete treatment  of  the  subject  of  conducting  credits 
and  making  collections,  and  to  that  end  is  divided  into 
three  parts. 

The'' first  part  treats  of  the  general  function  of  a 
credit  department,  its  place  in  business  and  its  rela- 
tions to  the  other  commercial  operations;  it  discusses 
the  general  management  of  credits  and  collections  and 
the  organization  of  a  credit  department,  analyzes  the 
factors  involved,  and  describes  the  tools  at  the  disposal 
of  the  credit  man  in  his  work. 

In  the  second  part,  the  subject  is  divided  and 
considered  as  to  the  different  lines  of  business  in 
which  credit  operations  play  an  important  part.  Here 
is  described  in  detail  the  management  and  conduct  of 
a  credit  department  in  various  classes  of  business, 
and  actual  specific  methods  of  carrying  on  credit  and 
collection  operations. 

In  the  third  part  are  described  in  detail  actual  sys- 
tems now  in  use  for  conducting  credit  departments 
in  all  lines  of  business,  fully  illustrated  with  repro- 
ductions of  such  blanks  and  forms  as  may  appear  in 
keeping  the  accounts  and  records  of  the  department- 


vi  PREFACE 

The  unfailing  courtesy  and  willingness  to  give 
suggestions  and  help,  which  the  editor  met  in  the 
preparation  of  this  work,  make  the  usual  conventional 
task  of  thanking  those  to  whom  he  is  indebted  es- 
pecially pleasant.  To  the  business  men  and  credit 
managers  who  have  contributed  the  chapters  which 
make  up  this  book,  thanks  are  due,  not  only  for  the 
time  and  careful  thought  which  they  put  into  the 
preparation  of  this  work,  but  also  for  the  encourage- 
ment and  careful  advice  they  gave  the  editor.  More 
specifically,  the  editor  wishes  to  thank  Mr.  P.  R. 
Earling,  the  Nestor  of  Chicago's  credit  men,  Mr.  Dor- 
chester Mapes  and  Mr.  Berthold  E.  Borges,  for  their 
valuable  advice  and  for  their  assistance  in  reading 
the  proof  sheets  of  the  book,  and  Mr.  John  Griggs, 
secretary  of  the  Chicago  Credit  Men's  Association,  for 
his  many  suggestions. 

THE  EDITOR. 

Chicago,  June  1,  1904. 


TABLE  OF  CONTENTS 


Part  I— THE  COMPONENT  PARTS  AND  FACTORS  OF  A 
CREDIT  DEPARTMENT 

P«» 

Chapter  I.  The  general  function  and  work  of  a  credit  department I 

Peter  R.  Earling,  Vice-Preadent  of  L.  Could  6c  Co. 

Chapter  II.  The  organization  and  management  of  a  credit  depiurtment 19 

Dorchestei  Mapes,  President  of  The  Dorchester  Mapes  Co. 

Chapter  III.         The  characteristics  of  a  good  credit  man  28 

F.  F.  Peabody,  Vice-President  of  Cluett,  Peabody  &  Co. 

Chapter  IV.       The  function  and  work  of  a  commercial  agency 38 

T.  J.  Zimmerman 

Chapter  V.        The  interchange  of  ledger  experiences 49 

H.  A.  Wheeler,  Vice-President  of  The  Credit  Clearing  Houm 

Chapter  VI.       Credit  insurance — its  purpose  and  worth 65 

T.  J.  Zinunerman 

Chapter  VII.      Correspondence  in  the  credit  department 77 

N.  M,  Tribou  of  Longley,  Low  &  Alexander 


Part  II— THE  MANAGEMENT  OF  CREDITS  AND  COLLECTIONS 
IN  DIFFERENT  CLASSES  OF  BUSINESS 


Chapter  VIII.     Cre(£ts  and  collections  in  a  whol^ale  house 65 

Edward  M.  Skinner  of  Wilson  Bros. 

Chapter  DC        Credits  and  ccJlections  in  a  manufacturing  house •  • .  •     102 

Berthold  E.  Borges  of  The  Sherwin-Williams  Co. 

Chapter  X.         Credits  and  collections  in  a  retail  house 124 

J.  A.  McConnell  of  H.  a  Selfridge  &  Co. 

Chapter  XI.        Credits  and  collections  in  an  installment  house ._ 135 

E.  F.  Kennedy,  President  of  The  Kennedy  Funutuie  Co. 

Chapter  XII.      Credits  and  collections  in  foreign  trade  ■ 142 

John  E.  Gardin  of  The  City  National  Bank,  New  York 


Part  III— COMPLETE  SYSTEMS  IN  ACTUAL  OPERATION  FOR 
CONDUCTING  CREDIT  DEPARTMENTS 

Chapter  XIII.     A  system  for  conducting  the  credits  of  a  wholesale  house 151 

F.  E.  French  of  J.  V.  Farwell  &  Co. 

Chapter  XIV.    A  credit  and  collection  system  for  a  manufacturing  house 1 58 

W.  S.  Terrell  of  The  Simmons  Manufacturing  Co. 

Chapl«tXV.     A  system  for  the  credit  department  of  a  retail  house 173 

As  used  in  Chicago's  Department  Stores 

Chapter  XVI.    A  credit  and  collection  system  for  an  installment  house 183 

Henry  Marcus  of  Spiegel's  House  Furnishing  Co. 

Chapter  XVII.  A  credit  and  collection  system  for  a  retail  house 101 

C.  C.  Parsons  of  The  Shaw-Walker  Co, 


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CHAPTER   I 

THE   GENERAL  FUNCTION   AND  WORK  OF  A 
CREDIT  DEPARTMENT 

By   peter  R.  EARLING 
Vice-President,  L.  Gould  &  Company 

The  handling  of  credits  has  undergone  a  radical 
change  in  the  last  ten  years.  The  work  is  now  being 
done  under  modern  methods,  with  greater  intelligence 
and  a  better  knowledge  of  the  subject  on  the  part  of 
the  credit  man.  In  fact,  the  dispensing  of  credit  has 
been  reduced,  if  not  to  a  science,  at  least  to  a  study 
on  scientific  lines.  A  close  scrutiny  of  the  losses  from 
bad  debts  reported  by  the  agencies  from  one  year  to 
another  leads  me  to  estimate  that  the  present  im- 
proved methods  of  credit  management  are  resulting 
in  a  saving  of  at  least  $25,000,000  annually  to  the 
creditors  throughout  the  country.  And  this  estimate 
applies  to  normal  industrial  conditions;  the  saving  in 
time  of  depression  and  panic  would  show  a  much 
larger  sum. 

At  first  glance  this  statement  might  seem  to  in- 
dicate that  we  had  curtailed  credits  and  become  hard 
and  distrustful,  but  that  is  not  a  true  inference. 
Credit  is  dispensed  to-day  as  liberally  as  ever,  but  it  is 
a  more  intelligent  dispensation.  By  cutting  off  the 
unworthy  from  credit,  we  are  in  position  to  extend  it 
to  the  worthy  more  than  we  ever  could  before  The 
curtailment  applies  to  those  who  are  not  entitled  to 

1 


2  CREDITS  AND  COLLECTIONS 

credit,  and  it  is  from  this  source  that  we  estimate  the 
decrease  in  losses 

Prior  to  ten  years  ago  the  credits  and  collections 
of  the  average  concern  were  delegated  to  people  who 
did  the  work  incidentally  and  without  giving  it  much 
attention  and  study,  and  the  results  were  necessarily 
unsatisfactory.  The  collection  end  of  the  business 
was  particularly  remiss.  If  a  customer  made  a  small 
payment  now  and  then  on  account,  he  continued  in 
good  standing. 

All  this  is  changed  now.  We  sell  goods  with  a 
definite  understanding  as  to  terms,  and  we  rather 
expect  bills  to  be  met  according  to  these  terms.  As 
for  carrying  accounts  indefinitely,  that  is  done  to  a 
very  limited  extent  now — at  any  rate  not  with  the 
creditor's  approval.  One  reason  for  this  change  has 
been  that  the  decreasing  margin  of  profit  in  business 
does  not  permit  long-time  credits.  The  business  man 
of  to-day  must  turn  his  capital  much  oftener  than  did 
his  father  to  make  a  profit,  and  prompt  returns  for 
goods  have  become  a  necessity.  It  was  no  doubt  this 
necessity  and  these  conditions  that  made  business 
houses  recognize  the  importance  of  better  methods 
in  the  handling  of  credits  and  collections. 

In  asserting  that  the  present  day  credit  man's 
work  is  done  on  a  more  scientific  basis,  I  do  not  mean 
that  the  matter  of  extending  credits  in  any  individual 
case  is  being  governed  by  infallible  rules.  That  could 
not  be  done.  But  the  credit  man  can  and  does  keep 
the  average  of  his  losses  within  a  certain  percentage 
of  the  gross  sales  from  year  to  year,  and  to  the  extent 
that  he  does  that  he  is  doing  his  work  on  scientific 


PETER    R.  EARLING  3 

lines.  A  life  insurance  company  does  not  know  how 
long  any  one  of  its  customers  is  going  to  live,  but  it 
does  know,  absolutely,  the  average  length  of  human 
life,  and  that  we  call  arriving  at  a  scientific  basis  on 
which  to  do  business. 

A  large  part  in  this  improvement  in  credit  and 
collection  methods  in  the  past  few  years  has  been 
played  by  the  improved  facilities  for  carrying  on  this 
work  more  eflSciently,  The  mercantile,  reporting  and 
collection  agencies  have  all  bettered  their  service  to 
meet  the  demands  made  by  the  credit  departments, 
and  it  can  safely  be  said  that  the  more  we  demand 
and  are  willing  to  pay  for  the  more  we  may  expect. 

Even  the  smallest  wholesale  houses  in  these  days 
have  their  credit  men  and  their  more  or  less  well 
equipped  credit  departments.  The  larger  houses  have 
elaborate  systems  and  equipments,  affording  the  credit 
man  every  facility  for  getting  quick  and  reliable 
information  and  action. 

What  a  '^^^  position  of  credit  man  is  one  of 

Credit  Man  great  responsibility  and  is  invested  with 
Should  Be  dignity  and  importance.  While  his  de- 
partment is  not  everything,  yet  he  is  recognized  as 
being  a  very  vital  factor  in  a  business,  on  whom  a 
considerable  share  of  its  success  depends.  The  credit 
man's  office  is  distinctive  and  affords  him  opportunity 
to    distinguish    himself. 

Who  is  the  best  credit  man?  We  cannot  consider 
the  credit  man  per  se  at  all.  We  must  consider  him  as 
the  head  of  one  of  many  departments  of  a  business, 
and  his  department  must  work  out  that  policy  which! 
is  best  adapted  to  the  business  as  a  whole  and  which 
will  bring  the  best  general  results.  An  identical 
credit  and  collection  policy  for  all  lines  of  business 


4  CREDITS  AND  COLLECTIONS 

and  all  houses  would  not  do.  The  choice  of  the  proper 
policy  is  really  a  matter  requiring  careful  study,  and 
depends  on  all  the  varied  factors  which  go  to  make  up  a 
business  and  its  environment.  But  whatever  the  nature 
of  the  business,  that  credit  man  is  the  best  who  will 
approve  the  largest  percentage  of  orders  and  still  keep 
his  percentage  of  loss  down  to  a  fair  average.  One 
credit  man  might  refuse  half  the  orders  which  came 
to  his  house,  while  another  would  accept  90  per  cent 
of  them,  and  both  show  the  same  percentage  of  loss. 
The  90  per  cent  credit  manager  would  certainly  be  the 
more  valuable  man  of  the  two. 

The  credit  department  should  be  strong  and  ef- 
ficient. It  pays  to  be  liberal  in  supplying  it  with  every 
necessary  facility  for  securing  accurate  information 
and  quick  action.  But  this  department  should  not 
make  itself  obtrusive,  least  of  all  offensive  and  dicta- 
torial. It  should  rather  keep  a  little  in  the  background, 
and  a  friendly  and  confidential  attitude  on  the  part 
of  the  credit  man  is  much  better  than  a  distant  and 
imperious  bearing.  While  in  some  cases  the  inquisi- 
torial method  of  investigation  becomes  imperative, 
when  doubts  upset  our  faith  or  past  actions  call  for 
explanation,  yet  the  ideal  manner  for  the  credit  man 
to  meet  the  new  customer  is  in  an  informal  way,  and 
not  in  the  capacity  of  an  inquisitor. 

The  attainments  of  a  creclit  man  should  be  many 
and  varied,  though  not  at  all  marvelous  or  super- 
natural. He  must  needs  be  a  thorough  scholar,  an  apt 
correspondent,  a  fair  lawyer,  a  practiced  accountant 
and  a  good  collector,  besides  being  a  sound  business 
man.  He  must  possess  good  judgment,  be  quick  to 
read  human  nature  and  judge  character,  and,  more 
than  all,  he  should  possess  strong  intuitive  faculties. 


PETER  R.  EARLING  5 

After  all,  our  impressions  of  men  and  things  seldom 
proceed  from  logical  deductions.  They  are  intuitional 
— and  an  ounce  of  intuition  is  worth  a  pound  of  logic 
when  we  come  to  reckon  with  human  nature  and  its 
manifold  ramifications. 

For  young  men  working  into  the  credit  depart- 
ment I  would  suggest  that  they  make  themselves  thor- 
oughly familiar  with  bookkeeping,  accounting  and  ac- 
counts. A  good  credit  man  needs  to  be  a  proficient 
accountant  in  order  to  be  able  to  analyze  business  con- 
ditions and  property  statements  and  reports  with  dis- 
crimination. There  is  a  wide  difference  between  the 
bookkeeper  and  the  accountant.  Of  the  former  there 
are  plenty,  good,  bad  and  indifferent — mostly  indif- 
ferent— but  good  accountants  are  scarce. 

As  a  preliminary  training  the  credit  man  should 
also  have  had  a  turn  as  house  collector.  The  proper 
handling  of  collections  plays  a  most  prominent  part  in 
the  credit  man's  work  and  his  eflSciency. 

With  the  present  facilities  at  the  command  of  the 
credit  man,  it  is  hardly  excusable  in  him  to  make  a 
His  Attitude  ^^^  credit  at  the  start,  and  I  venture  to 
Toward  say  that  very  few  losses  are  made  on  the 

Customers  initial  credit.  In  this  respect  credit  mak- 
ing has  greatly  improved  in  late  years. 

The  extension  of  unwise  credit  to  applicants  with 
bad  or  unfavorable  records  can  be  avoided  by  using 
ordinary  care  and  industry  in  getting  information 
from  one  source  or  other,  all  well  known  and  com- 
paratively easy  of  access,  and  this  requires  no  par- 
ticular shrewdness.  Credits  made  to  such  as  these  are 
past  rectifying  and  are  inexcusable.  Sagacity  and  dis- 
crimination are  not  called  for  in  passing  on  this  class, 
nor  on  the  million  dollar  rating.    The  office  boy  could 


G  CREDITS  AND  COLLECTIONS 

dispose  of  these.  But  between  these  two  extremes 
of  good  and  bad  are  ninety-eight  out  of  every  hundred 
cases  which  come  before  the  credit  man,  which  have 
no  special  earmarks.  They  cannot  be  classed  among 
the  discreditable,  nor  yet  among  the  unquestionably 
good.  As  a  matter  of  fact,  the  great  majority  of  the 
men  to  whom  we  sell  have  for  their  principal  capital 
only  experience  and  energy  and  more  or  less  ability. 
Their  success  is  contigent  on  times  and  circumstances 
which  they  cannot  altogether  control,  and  the  creditor 
is,  therefore,  taking  a  joint  risk  with  them,  and  it 
is  well  to  bear  this  in  mind. 

Underneath  it  all  there  lies  a  fundamental  prin- 
ciple which  must  govern  us  in  making  credits  and 
which  adds  value  to  our  accounts.  Excepting  the  few 
notoriously  bad  and  dishonest  dealers,  we  have  reason 
to  assume  that  men  in  business  will  pay  if  they  can, 
even  though,  as  an  abstract  proposition,  they  may 
have  no  definite  notion  of  honesty  or  commercial 
honor.  Every  man,  nominally,  must  make  a  living  for 
himself  and  his  family ;  he  selects  this  or  that  business 
as  being  best  suited  to  his  circumstances  and  experi- 
ence; he  invests  what  little  money  he  had  earned  and 
saved  in  it.  Now  the  success  of  this  business,  to  the 
extent  at  least  of  making  a  living  for  him,  is  every- 
thing to  this  man.  He  does  nof  want  to  lose  it.  He 
understands  it  better  than  he  does  anything  else,  and 
the  work  is  easier  for  him  than  any  other.  He  has 
learned  and  knows  that  he  can  continue  this  business 
on  one  condition  only — that  he  pay  his  creditors,  and 
with  reasonable  promptness.  Honesty  and  good  com- 
mercial usages  commend  themselves  to  him  as  be- 
ing necessary,  or,  in  other  words,  he  realizes  that  hon- 


PETER  R.  EARLING  7 

esty  is  for  him  the  best  policy.  All  men,  with  rare  ex- 
ceptions, follow  out  this  line  of  reasoning.  We  say 
honesty  is  the  best  policy;  to  be  honest  is  really  the 
most  politic  thing  a  man  can  do,  for  it  reduces  the 
struggle  for  support  and  success  to  the  minimum. 

It  is  stated  as  a  law  that  all  human  action  fol- 
lows the  line  of  least  resistance.  This  same  law  cer- 
tainly applies  to  business  and  to  business  men.  We 
start  in  business  to  remain  in  it  until  we  can  retire 
honorably  and  in  comfort.  Changes  from  one  business 
to  another  are  not  contemplated.  The  business  or  pro- 
fession which  we  have  learned  and  followed  is  the 
easiest  for  us  to  pursue;  we  follow  the  line  of  least 
resistance. 

A  liberal  policy  in  credit  making  is  necessary  for 
the  healthy  growth  and  popularity  of  a  house.  To  be 
popular  is  next  to  being  successful;  in  fact,  the  most 
successful  houses  are  the  most  popular  the  world  over, 
and  vice  versa.  But  a  liberal  policy  in  credits  need 
not  mean  an  easy-going  policy.  This  might,  and  in  all 
probability  would,  work  harm  and  ruin  to  the  house 
in  the  long  run.  I  know  of  a  very  successful  house 
whose  policy  in  credit  extensions  is  wide  open,  in  ordi- 
nary times  at  least,  and  yet  its  losses  are  exceedingly 
small.  The  salvation  clause,  however,  rests  in  the  col- 
lection department.  This  end  of  the  business  is  drawn 
very  tight.  Credit  is  readily  given — with  due  discrim- 
ination, of  course — but  settlements  are  expected 
promptly  at  maturity  of  bills.  This  is,  in  fact,  the 
ideal  system  to  follow.  The  house  gains  popularity 
and  a  name  for  liberal  treatment,  which  it  deserves. 
But  when  the  bills  come  due,  then  it  is  time  for  the 
other  fellow  to  do  the  proper  thing. 


8  CREDITS  AND  COLLECTIONS 

Accounts  and  collections  being  the  essence  of  the 
subject  under  review,  a  consideration  of  accounts  and 
Analysis  and  *^^'^^  analysis  and  the  art  of  collecting  is 
Consideration  of  supreme  importance, 
of  Accounts  Dealers  in  merchandise  are  likely  to 

have  remnants  left  over  with  the  utmost  care  in  selec- 
tion, and  so,  dealing  in  credits,  remnants  are  likewise 
unavoidable.  Past  due  collections  are  remnants  which 
did  not  clean  up  as  calculated  by  the  credit  man. 
These  remnants  may  be  worth  nothing,  or  they  may 
realize  full  value,  depending  on  the  kind  of  effort  made 
to  clean  them  up.  In  any  event,  they  are  not  just 
what  we  bargained  for. 

That  the  credit  man  should  have  remnants  is  no 
reflection  on  his  ability.  He  determines  to  his  satis- 
faction, from  the  array  of  facts  and  information  before 
him,  that  the  credit  he  passes  on  is  collectable;  but 
no  amount  of  human  sagacity  can  determine  whether 
bills  will  be  paid  on  the  day  they  are  due. 

Up  to  maturity  we  have  accounts;  after  maturity 
we  call  them  collections.  Another  department  of  work 
is  then  made  necessary,  and  involves  the  matter  of 
facilities  and  services  at  our  command  for  doing  this 
work. 

Every  account  may  be  said  to  have  three  distinct 
stages  of  existence:  First,  before  maturity;  second, 
at  maturity,  and  third,  past  maturity.  We  might  add 
a  fourth,  and  call  it  past  recovery. 

Accounts  before  maturity  rarely  give  us  any  un- 
easiness, and  even  if  they  do,  we  are  not  In  a  position  to 
enforce  collection  at  that  stage.  As  a  matter  of  fact, 
the  losses  sustained  by  the  mercantile  world  on  ac- 
counts before  maturity  are  very  small.  There  is  rea- 
epp  for  this.   It  depends,  of  course,  a  great  deal  on  the 


PETER  R.  EARLING  9 

alertness  of  the  house  in  making  its  credits  It  is  safe 
to  say,  however,  that  we  seldom  lose  oil  bills  not  yet 
due. 

Accounts  at  maturity  also  do  not  disturb  us.  We 
make  demand  for  payment  when  due.  In  a  large 
number  of  cases  the  money  comes  without  demanding, 
the  debtor  keeping  close  watch  on  his  accounts  pay- 
able and  remitting  promptly  on  the  day  due.  Others 
not  so  methodical  pay  on  request  or  they  honor  draft. 
Up  to  this  point  the  work  is  easy,  involving  neither 
worry  nor  loss  of  sleep. 

Accounts  past  maturity  are  the  things  which  per- 
plex and  worry  us,  for  we  know  that  of  these  our  profit 
and  loss  account  is  made  up.  Yet  as  to  any  particular 
account  we  may  not  feel  specially  uneasy.  There  will 
always  be  a  considerable  percentage  of  past  due  ac- 
counts, and  no  business  house  conducted  on  the  ordi- 
nary lines  is  without  them.  However,  as  long  as  they 
are  simply  past  due,  and  only  our  first  request  has 
been  ignored,  there  is  still  no  ground  for  alarm,  par- 
ticularly when  dealing  with  the  smaller  merchants.  A 
great  many  men  have  peculiar  ideas  about  paying  bills, 
and  some  have  no  ideas  at  all  on  this  subject. 

Delinquent  customers  are  divisible  into  several 
classes — careless,  chronically  slow,  temporarily  hard 
up  and  insolvent.  Now,  which  pertains  to  our  case? 
To  decide  this  and  do  it  right — there  comes  the  rub. 
This  is  the  most  critical  juncture  in  the  life  of  an 
account,  and  the  most  difficult  problem  to  solve.  The 
strictly  correct  solution  is  to  ignore  possible  condi- 
tions altogether  and  say:  the  account  is  due  and  we 
must  have  the  money — and  take  peremptory  steps 
get  it.  But  there  are  two  protests  against  this  pro- 
cedure.   The  man  may  be  all  right,  and  policy  says 


10  CREDITS  AND  COLLECTIONS 

that  we  cannot  afford  to  drive  this  customer  away; 
and.  then  the  matter  of  expense  comes  in.  Further- 
more, to  send  the  collection  to  a  lawyer  at  this  uncer- 
tain stage  might  be  an  injustice  to  the  debtor.  So  long, 
then,  as  we  presume  the  customer  to  be  good  for 
eventual  payment,  we  are  inclined  to  use  only  the  coax- 
ing process. 

Because  an  account  is  not  paid  promptly  when 
due  does  not  signify  that  the  debtor  is  no  longer  to  be 

.  .  trusted,   or  that  our  claim   is  doubtful. 

Accounts  ' 

Become  Very  many   people   in   business   do   not 

Doubtful  know  the  value  of  punctuality,  and  are 
careless  in  meeting  any  or  all  engagements  to  a  most 
aggravating  extent,  and  yet  we  judge  them,  from  past 
experience  at  least,  to  be  good.  They  are  simply  care- 
less and  unmethodical. 

The  chronically  slow  man  is  no  doubt  most  ex- 
asperating. He  moves  just  so  fast  and  no  faster,  and 
whether  trade  or  seasons  are  good  or  bad  makes  not  a 
particle  of  difference  in  his  movements.  He  is  even 
too  slow  to  take  offense.  Sometimes  we  can  reach  a 
debtor  by  arousing  his  anger,  but  this  class  is  fire- 
proof against  anything  so  mild  as  words.  As  condi- 
tions of  trade  change  this  species  is  going  to  be  less 
numerous.  Of  course,  by  bringing  suit,  this  kind  of  a 
man  will  pay  on  the  last  day,  and  then  be  ready  to  buy 
of  us  again.  He  is  slow  to  wrath,  and  a  little  thing 
like  a  suit  does  not  disturb  the  even  tenor  of  his  ways. 

The  temporarily  hard-up  customer  can  generally 
give  some  reason  for  his  condition,  and  very  often 
there  are  very  good  reasons  for  his  being  unable  to  pay 
his  bills  with  his  wonted  promptness.  Generally,  too, 
these  people  feel  the  gravity  of  the  situation,  and  are 
eager  to  explain  to  us.     In  such  cases  it  wouicl  be 


PETER  R.  EARLING  11 

harsh  treatment,  to  say  the  least,  to  push  a  man  to  the 
wall,  when  perhaps,  too,  the  circumstances  are  beyond 
the  debtor's  control.  Where  there  are  extenuating 
circumstances,  and  when  we  know  what  these  circum- 
stances are,  we  are  forced  to  the  course  of  forbear- 
ance and  leniency  from  any  standpoint  from  which  we 
may  look  at  the  case. 

Where  do  the  insolvent  debtors  come  in?  That 
is  an  unknown  quantity.  Insolvency  in  the  strict  sense 
means  such  a  condition  of  a  man's  business  that  his 
property  will  not  pay  his  liabilities.  In  actual  business 
this  definition  is  modified  to  a  state  in  which  this  con- 
dition becomes  an  admitted  fact,  for  in  times  of  de- 
pression and  panic  very  few  of  our  debtors  would  be 
found  solvent  if  the  test  were  put  of  compelling  them 
to  pay  all  their  liabilities  promptly  at  maturity.  As- 
sets, though  considerably  in  excess  of  liabilities,  are 
often  not  convertible  into  debt-paying  factors.  In  the 
readjustment  of  things  during  panics,  of  conditions 
and  values,  time  is  an  essential  factor. 

Until  it  becomes  an  acknowledged  fact,  therefore, 
and  until  all  payments  have  really  been  suspended, 
we  cannot  call  a  concern  insolvent.  From  the  stand- 
point of  the  individual  creditor,  the  insolvent  condi- 
tion, until  legally  declared  so,  does  not  bar  us  from  col- 
lecting our  claims.  In  all  failures,  except  fraudulent 
ones,  it  always  happens  that  payments  are  made,  long 
after  insolvency  in  fact.  In  most  cases  this  is  done 
through  ignorance  on  the  part  of  the  debtor  of  his 
real  condition.  He  hopes  to  pull  through,  and  satisfies 
claimants  as  long  as  he  can. 

A  good  collector  is  an  artist.  But  to  be  that  com- 
prehends a  great  deal  more  than  is  generally  supposed 
or  even  apprehended  by  collectors  themselves.     As 


12  CREDITS  AND  COLLECTIONS 

a  vocation  it  is  capable  of  being  made  as  important 
as  any  that  I  know  of,  and  yet  very  few  ever  take  it 
Q  l"fications"P  ^®  ^  business  to  be  followed  or  to  be 
of  a  Good  studied.  But  usually  firms  attach  no 
Collector  special  importance  to  collecting,  and  it 
is  turned  over  to  an  employe  who  can  best  be  spared 
from  other  work,  or  to  make  a  temporary  place  for 
someone,  with  no  idea  of  permanency  in  that  position. 
The  employe  himself  looks  upon  this  employment  sim- 
ply as  a  stepping-stone  to  something  else  in  the  house, 
and  as  a  consequence  never  acquires  sufficient  knowl- 
edge of  the  vocation  to  be  called  a  collector  at  all. 

Let  us  take  up  the  qualifications  that  should  make 
a  good  collector:  First  of  all,  there  must  be  an  adapta- 
tion for  the  business.  Before  all  else,  a  man  must  be 
a  good  judge  of  human  nature.  As  this  happens  to  be 
an  intuitive  faculty  which  men  possess  in  varied  de- 
gree, and  as  it  is  not  a  thing  of  experience  or  of  train- 
ing, we  must  look  first  to  this  natural  qualification  in 
the  candidate  for  collector.  This  faculty  of  intuition, 
of  intuitive  knowledge,  is  a  prime  requisite,  for  only 
through  its  discernment  are  we  enabled  to  form  opin- 
ions, or,  as  we  say,  impressions.  It  would  be  absurd 
to  believe  everything  that  everybody  will  tell  us, 
and  how  far  we  believe  or  disbelieve  any  statement 
depends  on  the  impression  yiade  on  us,  and  this 
impression  is  not  a  matter  of  willing  or  volition.  On 
past  due  accounts  the  inventive  genius  for  making  ex- 
cuses and  giving  reasons  is  particularly  active.  Some- 
times reasons  and  promises  given  are  pure  fiction  and 
sometimes  they  are  honest  enough,  but  based  on  too 
sanguine  expectations.  Sometimes  promises  are  made 
with  the  intention  of  gaining  time  for  the  debtor's 
own  purposes,  and  again  promises  are  made  to  be  kept. 


PETER  n.  EAELING  13 

How  are  we  to  know?  If  the  collector  is  not  a  judge 
of  men  he  cannot  know.  No  man  in  these  things  is  in- 
fallible, of  course,  but  there  is  a  marked  difference  in 
this  respect  in  men. 

Politeness  is  another  quality  which  is  necessary. 
To  antagonize  the  man  who  owes  us  results  in  loss  of 
his  friendship;  and  it  may  do  more — we  will  probably 
get  his  ill-will  besides.  This  does  not  help  the  collector 
and  will  not  be  a  good  thing  for  the  house.  Civility  is 
always  better  than  its  antithesis;  it  will  get  more  busi- 
ness and  more  money.  Underneath  it,  however,  the 
collector  is  supposed  to  keep  in  mind,  first,  last  and  all 
the  time,  what  he  is  after,  and  bend  every  effort  in  that 
direction.  Sympathy,  too,  for  conditions  must  not  be 
lacking,  for  there  are  circumstances  many  times  where 
sympathy  and  leniency  should  not  be  withheld.  The 
bonds  of  sympathy  beget  confidence,  and  confidence 
between  men,  whether  in  buying,  selling  or  collecting, 
is  an  important  factor. 

The  collector  should  also  be  able  to  determine  in 
his  own  mind  the  debtor's  capacity  and  general  ability 
as  a  business  man  and  manager.  He  should  have  a 
quick  eye  for  taking  in  the  surroundings  and  general 
tone  of  the  business. 

Over  and  above  all,  the  collector  should  be  a  good 
judge  of  stocks  of  goods  and  of  property  generally  as 
to  value  and  convertibility.  He  must  always  bear  in 
mind  that  at  forced  sale,  or  in  the  event  of  trouble, 
property  will  not  bring  cost,  and  that  accounts  are  not 
worth  their  face  value. 

The  good  collector  also  knows  something  about 
law.  He  knows  what  exemptions  may  be  claimed  by 
the  debtor,  knows  the  rights  and  privileges  granted  by 


14  CREDITS  AND  COLLECTIONS 

the  law  ta  both  plaintiff  and  defendant,  and  has  a  fair 
idea  of  legal  procedure  in  general. 

If  a  collector  be  a  good  tactician,  which  he  must 
be  to  be  a  success  at  his  vocation,  he  will  get  the 
money  or  security  or  be  thoroughly  satisfied  that 
further  indulgence  is  safe,  or,  at  any  rate,  the  best 
policy  under  the  circumstances  and  for  the  time  being. 

The  above  outline  for  qualifications  for  a  collector 
may  seem  somewhat  ideal.  Of  course,  everyone  who 
does  collecting  would  not  pass  examination  if  this 
were  adhered  to  as  a  standard,  but  if  it  were  we  would 
have  a  corps  of  well-trained  collectors,  whose  assist- 
ance to  our  credit  and  collection  departments  would 
be  of  immense  value. 

Intelligent  and  unremitting  persistence  is  the 
secret  of  success  in  collecting. 

The  first  thing  to  do  when  an  account  is  past  due 
and  demand  for  payment  haa  been  refused  is  to  have 
S  c  s  *ve  *^^  collector  get  all  the  information  he 
steps  in  can  concerning  the  debtor.    Let  him  look 

Collections  ^p  ^j^g  report  on  file,  or  have  reports  pro- 
cured if  not  on  file.  This  gives  the  collector  an  idea 
of  the  debtor's  resources,  character  and  other  details, 
and  is  a  greal  help  to  him  in  handling  the  case.  Not 
that  he  will  be  governed  by  it.  His  next  step  will  be 
to  learn  if  the  reports  can  be  verified  or  not;  for  if 
they  are  wrong,  the  credit  was  based  on  wrong  infor- 
mation to  start  with.    It  is  important  to  know  this. 

When  an  account  becomes  past  due  and  remains 
unpaid,  after  proper  efforts  have  been  made  to  collect, 
the  collector  has  then  an  entitled  right  to  ask  for  and 
demand  information  concerning  the  debtor's  business. 
Under  these  circumstances  the  debtor  cannot  refuse 
the  demand  with  justice,  and  if  he  does  so,  the  action 


PETER  R.  EARLING  15 

is  unwarranted  and  open  to  suspicion  at  once.  The 
debtor  asks  a  favor  when  he  asks  an  extension  of  time, 
and  in  asking  this,  it  bcomes  a  duty  on  his  part  to  sat- 
isfy his  creditor  on  the  score  of  his  responsibility  and 
solvency.  This  right  on  the  part  of  the  collector  is  a 
very  important  one  at  this  stage.  The  information 
gained  up  to  date  should  be  comprehensive  and  state 
what  the  assets  are  composed  of,  viz.,  real  estate,  per- 
sonal property,  merchandise,  accounts  and  bills  receiv- 
able, and  so  on.  A  statement  of  the  liabilities  also  is 
essential.  A  knowledge  of  these  facts,  corroborated, 
and  of  the  general  character  of  the  debtor  himself, 
places  the  collector  in  a  position  to  determine  intelli- 
gently whether  it  is  safe  to  extend  further  time  or  not. 
There  is  always  a  time,  and  proper  time,  when  we 
must  know  what  to  do  and  not  guess  at  what  should 
be  done.  The  credit  may  have  been  ill-advised  from 
the  very  start,  or  things  may  have  intervened  since 
making  the  credit  that  have  affected  the  debtor  ad- 
versely. In  all  these  matters  the  collector  is  to  find 
out  these  things  in  time,  and  without  wasting  time. 

Sometimes  a  debtor  becomes  pugnacious.  The 
ordinary  tactics  being  unavailable  in  such  cases,  there 
is  then  only  one  other  step  to  be  taken.  The  lawyer 
must  come  in  and  enforce  collection  by  law,  and  that 
without  any  delay.  The  preliminary  work  has  been 
done,  and  the  lawyer  is  not  asked  to  waste  valuable 
time  in  running  after  the  debtor.  It  is  expected  that 
the  collector  knows  what  he  is  about  when  the  claim 
is  turned  over  to  the  lawyer;  he  is  supposed  to  know 
that  at  this  particular  stage  the  claim  can  be  en- 
forced, although  it  may  transpire  that  between  the 
time  of  commencement  of  legal  proceedings  and  execu- 
tion the  debtor  defeats  our  efforts  in  the  end. 


16  CREDITS  AND  COLLECTIONS 

At  a  certain  stage  in  out-of-town  collections  the 
business  man  depends  on  the  banks.  Many  houses, 
Banks  and  ^^^S^  ^^^  small,  expect  to  pay  demands 
Attorneys  as  through  the  banks  by  means  of  drafts 
Collectors  drawn  on  them.  The  expense  is  nominal 
and  the  service  is  one  of  inestimable  convenience  to 
the  creditor  class,  for  without  this  accommodation  on 
the  part  of  the  banks  the  creditor  would  be  in  a  bad 
plight.  In  making  our  demands  it  must  be  done  with- 
out antagonizing  on  the  one  hand,  and  on  the  other 
hand,  there  must  be  responsibility  attaching  to  the 
people  to  whom  we  intrust  the  collection  of  our  money. 
The  bank  supplies  both  of  these  requisites.  The  bank, 
in  fact,  is  the  recognized  medium  between  creditor 
and  debtor,  and  in  making  our  demands  through  a 
bank  we  give  no  offense  to  our  customers. 

So  far  as  concerns  those  collections  through  banks 
which  meet  with  prompt  attention  and  payment  on  the 
part  of  the  drawee,  the  business  is  conducted  for  all 
parties  in  the  best  possible  manner.  When  we  con- 
sider, however,  collections  which  are  not  paid  on  pre- 
sentation or  notification,  on  these  the  system  and  the 
service  is  weak,  although  not,  let  me  add,  from  any 
fault  of  the  banks.  As  a  matter  of  fact,  banks  do  not 
give  themselves  out  as  collection  agencies.  What  they 
do  for  us  must  always  be  looked  upon  in  the  light  of 
an  accommodation,  and  so  far  as  they  can  be  of  service 
to  us  without  loss  to  themselves  they  are  glad  to  do  it. 
Nor  have  we  any  right  to  expect  service  of  them  which 
entails  expense  without  adequate  compensation.  ■  The 
truth  is  that  few  banks  are  making  this  department 
of  business  pay,  and  very  few  really  solicit  it;  in  fact, 
many  decline  it  altogether.  So  far  as  collecting  drafts 
goes,  where  only  a  simple  notification  or  presentation 


PETER  R.  EARLING  17 

is  required,  they  can  do  this  without  addition  to  their 
staff,  and  up  to  this  point  the  bank's  service  is  all 
right.  But  when  it  comes  to  using  their  staff  as  col- 
lectors in  the  sense  we  use  our  house  collectors,  they 
cannot  and  do  not  give  the  needed  service. 

A  good  many  drafts  are  sent  to  banks,  and  after  a 
shorter  or  longer  interval  of  holding,  the  drafts  are  re- 
turned as  unpaid  collections.  If  the  debtor  states  rea- 
sons for  declining  to  pay,  the  bank  usually  makes  the 
notation;  but  very  often  no  reasons  at  all  are  given, 
simply  "payment  refused."  The  bank  does  not,  in 
these  cases,  feel  called  upon  to  give  its  own  opinion, 
and,  on  general  principles,  dislikes  to  be  used  as  a 
mercantile  reporting  agency  anyway. 

The  bank  is  the  natural  and  accepted  medium  be- 
tween creditor  and  debtor,  without  giving  offense  or  in 
any  way  antagonizing  our  debtor.  But  this  cannot  be 
said  of  an  attorney.  We  cannot  make  demand  of  our 
money  through  a  lawyer  without  disrupting  amicable 
relations.  Worse  than  that,  it  at  once  antagonizes  the 
debtor,  and  his  attitude  becomes  one  of  resistance  in- 
stead of  compliance.  That  this  is  not  a  good  mood  to 
get  our  debtor  into  goes  without  saying.  If  we  have 
concluded  to  drop  him  on  the  strength  of  positive 
knowledge  that  the  claim  cannot  be  made  in  any  other 
way,  of  course  there  is  no  longer  any  room  for  hesi- 
tancy. But  the  trouble  with  out-of-town  collections  is 
that  we  do  not  act,  and  in  this  hesitancy  is  where  the 
chief  danger  to  our  claims  lies. 

Even  after  sending  claim  to  the  attorney,  we  fre- 
quently waste  much  valuable  time,  resulting  in  the  loss 
of  a  great  many  accounts  by  a  dilly-dallying  process, 
partly  our  fault  and  partly  the  fault  of  the  lawyer. 
When  we  have  decided  to  send  our  claim  to  the  at- 


18  CREDITS  AND  COLLECTIONS 

torney,  we  have  then  practically  broken  off  further  re- 
lations with  our  debtor.  We  have  set  aside  all  policy 
in  that  case  and  have  concluded  to  incur  the  expense 
of  legal  services,  as  nothing  more  is  apt  to  be  gained  by 
waiting.  We  should  instruct  the  attorney  to  enforce 
collection  by  law,  without  further  delay,  and  not  try 
to  use  the  lawyer  as  a  collector.  We  then  place  the 
attorney  in  a  better  attitude,  too,  toward  the  debtor. 
He  has  instructions  and  they  must  be  obeyed,  and 
neither  personal  friendship  nor  local  interests  can  be 
allowed  to  Influence  him. 

Attorneys  are  human,  and  generally  prefer  to  col- 
lect by  coaxing  and  waiting  rather  than  precipitate 
a  man's  ruin,  especially  when  attorney  and  debtor  are 
good  neighbors  and  personally  acquainted,  as  is  the 
case  in  small  places.  Now,  the  waiting  and  coaxing 
process  would  be  all  right  but  for  one  thing.  The  at- 
torney's education  is  not  on  commercial  lines  in  so  far 
as  being  a  competent  judge  of  values  of  merchandise 
or  personal  property.  The  lawyer  must  not  be  ex- 
pected to  possess  the  keen  insight  into  values  of  goods, 
business  conditions  and  prospects  of  success  in  a  busi- 
ness which  requires  mercantile  training  and  experi- 
ence. His  vocation  is  to  practice  law  and  to  enforce 
the  law.  All  other  work  should  be  done  before  the 
lawyer  is  called  upon. 


CHAPTER    II 

THE  OEGANIZATION  AND  MANAGEMENT  OP  A 
CREDIT  DEPARTMENT 

By  DORCHESTER  MAPES 
President,  The  Dorchester  Mapes  Company 

The  organization  and  management  of  a  credit  de- 
partment is  not  unlike  the  building  and  superintend- 
ing of  a  manufacturing  plant;  each  requires  architect, 
workmen,  plans,  material,  tools,  and  all  must  be 
selected  with  an  intelligent  conception  of  the  ulti- 
mate purpose. 

It  is  the  little  details  that  make  or  mar  the  ef- 
fectiveness of  any  structure  or  organization  just  as  it 
is  the  little  things  of  everyday  life  that  make  of  life 
success  or  failure;  nor  does  the  likeness  end  there,  for, 
as  the  life  requires  a  sterling  character,  so  the  struc- 
ture must  have  a  firm  foundation,  the  organization  a 
master  mind. 

The  demonstration  of  any  proposition  depends 
upon  some  accepted  truth  or  fundamental  principle, 
and  so  in  dealing  with  this  subject  we  must  agree 
upon  an  axiom.  Experience  has  convinced  me  that 
the  prime  essential  to  a  successful  credit  department 
is  that  it  shall  have  a  head;  a  head  who  shall  be  man- 
ager in  fact  as  well  as  in  name,  whose  decision  shall 
be  final,  and  the  results  of  whose  judgment  shall  be 
accepted  as  predestined. 

Much  might  profitably  be  said  on  this  point,  but 
for  the  present  let  us  accept  it  as  our  axiom,  and  for 

19 


20  CREDITS  AND  COLLECTIONS 

a  corollary  that  the  credit  department  and  collection 
department  must  be  so  fused  together  and  so  con- 
ducted that  each  knows  the  other's  movements  and 
opinions — that  the  two  shall  be  as  one. 

It  is  well-nigh  impossible  to  treat  the  subject 
without  going  into  the  details  of  the  methodizing  of 
the  department,  but  it  is  my  intention  to  do  so  only  in 
a  very  general  way. 

The  selection  of  the  credit  department  manager 
is,  of  course,  all-important,  and,  as  I  have  elsewhere 
Position  and  ^^^^y  ^^  should  be  of  unflinching  deter- 
Duties  of  mination,  yet  open  to  conviction;  quick 
Manager  ^^  decision,  yet  not  hasty  of  judgment; 

he  should  have  a  faculty  for  discerning  between  truth 
and  falsity,  and  still  be  neither  credulous  nor  incred- 
ulous; he  should  be  an  accurate  judge  of  human  na- 
ture; he  should  be  even-tempered,  calculating  and  pa- 
tient, yet  quick  to  act  in  an  emergency;  he  must  re- 
spect the  position  and  the  opinions  of  others,  and 
must  certainly  command  the  respect  and  confidence 
of  both  superiors  and  subordinates,  and  especially  of 
the  sales  department. 

The  manager  must  recognize  the  importance  of  at 
least  aiming  to  live  up  to  the  foregoing  ideal,  and  in 
selecting  his  assistants  he  should  look  for  those  quali- 
ties which  will  tend  to  bring  the  entire  department  up 
to  the  same  high  plane. 

In  treating  with  his  assistants  he  should  encour- 
age independence  of  thought  and  action  and  the  form- 
ing of  individual  opinions,  taking  pains  to  explain  his 
own  course  of  reasoning,  and  differing  arbitrarily  only 
when  reasoning  fails. 

This  habit  will  cultivate  self-reliance  all  down  the 
line  and  make  the  department  strong  to  grapple  with 


DORCHESTER    MAPES  21 

diflBculties  should  they  arise  during  the  absence  of  the 
manager. 

Subordinates  in  the  credit  department,  from  the 
first  assistant  down,  must  have  high  respect  for  the 
manager  and  confidence  in  his  opinions;  otherwise 
there  will  be  lacking  that  perfect  harmony  and  one- 
ness of  purpose  which  in  this  department  of  all  others 
are  absolutely  essential  to  best  results. 

"Eternal  vigilance  is  the  price  of  liberty,"  and  it 
is  also  most  certainly  the  price  of  success  in  the  credit 
department,  for,  while  the  gathering  of  information 
and  forming  of  credit  opinions  is,  of  course,  its  pri- 
mary function,  its  business  is  not  finished  until  ac- 
counts are  collected,  hence  there  must  be  close  and 
constant  communion  between  the  credit  and  collec- 
tion branches  of  the  department.  So  necessary  is  this 
that,  while  the  credit  manager  can  seldom  give  per- 
sonal attention  to  the  following  up  of  collections, 
still  if  his  opinions  of  each  account  could  be  constantly 
before  the  assistant  to  whom  that  duty  falls,  it  would 
be  a  very  great  help.  Having  such  information  be- 
fore him,  that  assistant  should  immediately  report 
any  indications  which,  in  the  light  of  said  opinions, 
appear  significant.  There  are  ways  of  accomplishing 
this  close  relationship,  one  of  which  I  will  presently 
outline. 

The  manner  in  which  an  account  of  the  average 
sort  is  subsequently  handled  by  the  collection  depart- 
ment is  quite  as  important  as  the  original  question 
of  opening  it,  therefore  I  argue  that  (if  we  can  sep- 
arate the  two)  the  work  of  the  collection  department 
is  as  serious  and  demands  as  high  a  degree  of  clever- 
ness as  does  the  work  of  the  credit  department. 

If  I  were  asked  to  name  the  one  qualification  most 


22  CREDITS  AND  COLLECTIONS 

needed  in  the  collection  department  I  should  unhesi- 
tatingly say  "decision;"  indecision  in  the  credit  de- 
partment is  often  dangerous,  while  in  the  collection 
department  it  is  frequently  fatal. 

One  may  often,  and  all  do  sometimes,  make 
wrong  decisions,  but  indecision  is  wrong  in  any  event. 
Delay  in  using  vigorous  methods  to  collect  many  times 
means  a  loss,  while  hesitation  to  grant  an  extension, 
if  it  is  to  be  granted,  or  the  granting  of  it  with  ap- 
parent unwillingness,  annuls  the  good  effect  it  might 
otherwise  have. 

The  credit  department  cannot  have  too  mucTi  in- 
formation, but  it  nevertheless  is  frequently  over- 
whelmed with  a  mass  of  voluminous  reports  contain- 
ing much  that  is  of  little  importance  or  only  what 
might  be  as  well  expressed  in  half  the  words. 

These  reports,  however,  must  be  read  carefully, 
lest  some  important  fact  be  hidden  away  in  a  field  of 
"words — mere  words." 

If  our  mercantile  agencies  would  school  their  re- 
porters and  compilers  to  give  facts  in  the  fewest  words 
necessary  to  clearness,  putting  a  premium  on  terse- 
ness, they  might  save  themselves  much  expense  and 
confer  a  boon  upon  credit  men. 

To  reduce  the  labor  of  reading  through  and 
through  long  reports  from  various  sources,  much  of 
System  for  which  is  repetition,  to  make  sufiQcient 
Handling  the  doing  of  it  once  in  most  cases,  and  to 
CJredit  Data  ij^jng  about  that  close  co-operation  with 
the  collection  branch  of  the  department  referred  to,  I 
have,  in  my  own  practice,  worked  out  a  plan  which  has 
proved  so  helpful  that  I  venture  to  suggest  it  to  others. 

Having  in  a  given  case  arranged  all  your  infor- 
mation in  form  convenient  for  consideration  and  sub- 


DORCHESTER    MAPES  23 

sequent  filing,  proceed  to  read,  and  let  there  be  method 
in  your  reading;  read  on  the  linesand  between  the  lines, 
making  note  of  inconsistencies  and  exaggerations  as 
well  as  prejudices  for  and  against;  endeavor  always 
to  discriminate  between  fact  and  fancy,  and  form  in 
the  meanwhile  an  opinion  which,  in  the  end,  you  are 
to  formulate  in  the  shape  of  a  "brief,"  which  shall  in 
few  words  set  forth  the  important  or  salient  features 
of  the  case,  preceded  by  a  line  of  instructions  to  be 
followed  in  the  subsequent  handling  of  the  account. 

With  a  little  practice  such  briefs,  even  in  com- 
plicated cases,  can  be  made  quite  exhaustive  and  still 
expressed  in  surprisingly  few  words,  and  in  very  many 
cases  stereotyped  forms  may  be  used. 

Transcribe  this  brief  to  a  small  blank,  gummed  on 
its  upper  edge,  and  paste  the  blank  on  the  face  of  the 
latest  or  top  report  of  the  file,  where  it  will  remain 
as  a  marker  between  reports  already  examined  and 
those  which  accumulate  subsequently. 

Now,  if  this  brief  be  also  transcribed  to  the  face 
of  the  ledger  account,  then  every  item  that  is  posted 
and  every  move  made  by  the  collection  department, 
and,  in  fact,  every  move  made  by  anyone  in  connection 
with  the  ledger  account,  will  be  made  with  that  full 
understanding  necessary  to  intelligent  action. 

Again,  if  the  card-ledger  system  be  used — and  it  is 
being  adopted  by  many  progressive  concerns — mar- 
ginal space  for  the  writing  of  the  brief  can  be  pro- 
vided, and  this  space  will  also  be  found  very  useful  for 
other  data  necessary  to  an  understanding  of  the 
account. 

By  this  plan  of  briefing  information,  coupled 
with  the  use  of  the  card  ledger,  there  can  be  evolved 
a  system  of  credit  department  methods  which  will  be 


24  CREDITS  AND  COLLECTIONS 

safeguarded  at  every  turn  and  as  nearly  automatic 
and  perfect  in  its  workings  as  can  be  anything  which 
depends  upon  human  foresight  and  human  watch- 
fulness. 

The  treating  of  information  in  this  manner  is  ben- 
eficial, even  if  for  no  other  reason,  just  because  it  will 
cultivate  a  habit  of  watching  more  closely  for  the 
points,  often  seemingly  trivial,  which  make  the  risk 
desirable  or  otherwise.  If  one  reads  with  a  view  of 
writing  an  opinion,  the  reading  will  surely  be  done 
more  understandingly.  The  first  effort  is  perhaps  a 
trifle  greater,  but  the  brief  can  be  dictated  and  the 
transcribing  done  by  a  minor  clerk,  and,  regardless  of 
effort  or  expense,  it  pays,  for  it  makes  the  subsequent 
handling  of  the  account  work  like  automatic  ma- 
chinery; it  strings  live  wires  from  every  account  so 
treated  to  the  manager,  and  the  least  flaw  or  break 
is  at  once  made  known  to  him. 

In  his  work  of  passing  upon  orders  the  credit 
man  can,  if  the  above  methods  be  adopted,  lay  to  one 
side  every  order  about  which  he  has  the  slightest  hesi- 
tation, whereupon  an  ever-ready  clerk  will  presently 
return  to  him  the  orders,  together  with  their  respec- 
tive ledger  cards,  which  will  place  before  him  at  a 
glance  the  history  and  exact  status  of  each  case. 

This  will  enable  him  to  act  upon  his  own  rather 
than  upon  the  lesser  intelligence  of  clerk  or  book- 
keeper conveyed  through  the  usual  reports  of  "Highest 
Credit,"  "Amount  Owing,"  "Amount  Past  Due,"  which 
are  often  misleading,  even  if  correct,  and  in  themselves 
worth  but  little  at  best. 

A  good  memory  is  valuable,  but  it  is  often  treach- 
erous, and  may  be  a  very  dangerous  thing  if  too  much 
relied  upon,  especially  in  credit  work.    With  training, 


DORCHESTER    MAPES  25 

perhaps  without,  the  memory  can  be  made  to  serve  as 
a  fairly  safe  guide  to  generalities,  but  a  system  must 
be  provided  which  will  look  after  details,  and  do  it  so 
easily  as  to  make  dependence  upon  memory  quite  un- 
necessary. 

Memory  will  often  carry  for  years  the  general  im- 
pression of  "good"  or  "bad"  in  connection  with  a  name, 
even  though  that  name  in  the  meantime  has  never 
been  brought  to  mind.  But  it  is  unsafe  to  depend  on 
memory  beyond  that  point,  for  many  of  the  "good" 
are  good  only  under  certain  conditions,  and  very  few 
are  good  regardless  of  conditions. 

Furthermore,  the  records  and  opinions  of  the 
credit  department  should  be  as  an  open  book  for  the 
use  of  the  house,  for,  while  the  credit  man  will  always 
gather  some  impressions  and  form  some  opinions 
which  cannot  well  be  defined  and  for  which  he  can 
hardly  give  specific  reasons,  still  it  is  intrinsically 
wrong  that  so  important  a  factor  in  the  operation  of 
any  business  institution  should  be  subject  to  the  life, 
health  or  caprice  of  one  individual. 

The  only  scale  by  which  any  method  or  system 
can  be  measured  is  the  scale  of  results;  if  through  its 
use  a  full  measure  of  the  results  aimed  at  is  obtained, 
it  is  invaluable — then  and  then  only  is  it  a  success. 
The  system  here  briefly  described  has  been  subjected 
to  severe  practical  test  for  several  consecutive  years, 
and,  measured  by  the  scale  of  results,  it  has  proved  a 
pronounced  success. 

Cordial  fellowship  and  frequent  consultation  be- 
tween the  credit  manager  and  the  salesman  are  indis- 
Relation  of  pensable.  Each  must  recognize  the  valu- 
Credit  Man  able  assistance  he  can  derive  from  the 
to  Salesmen     ^^^^j.  ^^^j  ^^  ^^^^  ^^^^^  ^^  ^^^^  ^^^  ^.g. 

ciprocal  service  which  he  can  certainly  give.      The 


26  CREDITS  AND  COLLECTIONS 

credit  manager  can,  if  he  will,  make  of  every  sales- 
man a  picket  to  warn  him  of  approaching  danger,  be- 
cause a  salesman,  if  he  be  trained  to  view  things  from 
the  credit  standpoint,  can  glean  information  obtain- 
able in  no  other  way.  He  meets  the  customer  in  his 
home  environment,  where  he  is  free  from  those  re- 
straints by  which  he  is  more  or  less  controlled  when 
on  his  guard,  as  he  naturally  will  be  in  the  presence 
of  the  credit  man.  The  salesman  thus  has  opportunity 
to  observe  and  note  those  habits  of  business  that  make 
for  or  against  success  and  those  habits  of  life  that  go 
to  make  character,  than  which  there  is  no  more  im- 
portant factor  in  the  consideration. 

To  accomplish  this  co-operation  the  salesman  must 
be  made  to  feel  and  to  know — and  it  must  be  a  fact — 
that  the  credit  department  is  just  as  anxious  as  he  to 
increase  sales,  but  that,  since  the  department  assumes 
all  the  responsibility  for  the  risk,  its  ambition  must 
be  always  under  perfect  control. 

Any  discussion  of  this  subject  would,  in  my  opin- 
ion, be  incomplete  if  it  failed  to  touch  on  the  value 
of  association.  The  progressive  credit  man  of  to-day 
appreciates  this  value,  and  no  longer  prefers  to  hold 
aloof  from  his  fellows. 

The  National  Association  of  Credit  Men  has  be- 
come a  power  for  good  in  the  credit  world.  It  has  an 
enrolled  membership  of  upward  of  five  thousand,  and 
its  influence  reaches  to  every  corner  of  the  United 
States.  It  has  in  eight  years  done  more  to  advance 
general  credit  conditions,  more  to  develop  credit  de- 
partment organization  and  more  to  develop  individual 
credit  men,  than  could,  by  any  other  means,  have  been 
accomplished  in  a  century.  I  am  firmly  of  the  opinion 
that  no  credit  department  organization  will  be  com- 


DORCHESTER    MAPES  27 

plete  if  it  be  not  identified  with  the  Credit  Men's  As- 
sociation, for  in  no  other  way  can  it  have  the  benefit 
of,  and  be  in  close  touch  with,  the  best  thought  and  the 
best  effort,  the  combined  thought  and  the  combined 
effort,  that  are  being  constantly  expended  along  the 
direct  lines  of  its  work. 

Nothing  could  be  more  demoralizing  to  the  head  of 
a  credit  department  than  that  his  work  be  harshly 
criticised  just  because,  perchance,  his  foresight  proves 
not  so  good,  in  some  particular  case,  as  some  other 
man's  "hindsight."  The  credit  man,  to  do  good  work, 
must  have  the  loyal  support  of  his  superiors,  not  only 
in  the  time  of  success,  but  particularly  in  times  of  de- 
pression, when  his  responsibilities  multiply  and  his 
judgment,  his  nerve  and  his  courage  are  most  needed. 
I  do  beseech  you,  therefore,  proprietors  and  higher 
oflQcials,  let  the  credit  man  at  all  times  feel  your  con- 
fidence in  him,  or — "let  him  out»" 


CHAPTER    III 

THE   CHARACTERISTICS   OF   A   GOOD   CREDIT 

MAN 

By  F.  F.  PEABODY 
T ice-President,   Cluett,  Peabody  &   Company 

The  title  of  credit  men,  as  used  in  most  houses,  in- 
cludes far  wider  duties  than  the  term  itself  defines. 
The  credit  man  is  usually  the  responsible  head  of  the 
entire  office  work,  with  general  oversight  over  the 
whole  bookkeeping  and  record  department,  and  is  in 
immediate  control  of  the  collections,  as  well  as  of  the 
credit  department  itself.  He  is  often  cashier,  too,  the 
man  in  charge  of  the  moneys  of  his  house  and  with  his 
finger  always  on  the  bank  balance,  the  bills  payable 
and  the  accounts  receivable. 

This  multiplicity  of  duties  is  due  to  two  causes. 
The  credit  man  is  pre-eminently  the  student  of  the  busi- 
ness concern.  In  his  particular  work  it  is  his  duty  to 
reach  certain  conclusions  from  careful  investigation  of 
the  characters  and  conditions  of  men,  through  per- 
sonal touch  with  them,  and  through  study  of  docu- 
mentary reports  and  historical  accounts.  He  is  the 
one  important  factor  in  the  management  of  a  business 
whose  work  is  all  on  the  inside.  Therefore,  the  gen- 
eral management  of  all  the  inside  work,  the  oflSce 
work,  is  assigned  to  him,  as  being  the  one  who  can 
most  conveniently  oversee  it,  and  who  is  the  nearest  to 
It,  both  territorially  and  functionally. 

More  important  than  this  is  the  second  cause, 
28 


F.  P.  PEABODY  29 

based  upon  the  fact  that  the  credit  man  is  in  closest 
touch  at  all  times  with  the  bookkeeping  department, 
that  control  over  its  methods  is  necessary  for  the 
proper  carrying  out  of  the  policies  and  system  of  the 
credit  department,  and  that  he  has,  as  a  rule,  come  up 
through  this  department. 

The  tests  of  a  credit  man's  success  as  measured  by 
his  employer  are  four:  The  average  annual  losses,  the 
accounts  receivable  measured  by  the  average  number 
of  days'  sales  contained  in  them,  the  average  percent- 
age of  discounts,  based  upon  receipts,  and  the  general 
office  expenses,  if  he  has  the  management  of  the  of- 
fice in  charge.  The  first  is  a  test  of  his  ability  purely 
as  a  credit  man;  the  second  and  third  his  worth  as  a 
collector;  the  fourth  his  capacity  in  executive  work. 

For  his  purely  credit  functions,  the  credit  man- 
needs  three  distinct  characteristics.  First,  a  wide  and 
Three  general  knowledge  of  business  methods 

Qualities  and  business  conditions.  When  deciding 
Necessary  whether  to  open  a  new  credit  account,  the 
credit  man  must  know  the  general  business  conditions 
of  the  territory  in  which  the  applicant  is  located,  in 
order  that  he  may  judge  whether  the  latter's  sales  and 
collections  are  likely  to  be  such  as  will  enable  him  to 
pay  his  account  when  it  is  due.  For  instance,  if  a 
crop  failure  seems  imminent  in  North  Dakota,  he  must 
draw  in  his  credits  in  that  region  and  must  handle  his 
accounts  accordingly;  on  the  other  hand,  if  a  well- 
founded  and  legitimate  boom  appears  to  be  starting 
in  Oklahoma,  he  should  attempt  to  extend  his  firm's 
business  there,  and  should  be  rather  free,  perhaps,  in 
granting  credit.  He  must  know  the  general  financial 
condition  of  the  country,  in  order  to  judge  whether  the 
prospects  on  which  the  debtor  depends  for  paying  his 


30  CREDITS  AND  COLLECTIONS 

account  will  materialize,  and  whether  his  own  firm 
can  stand  a  further  extension  of  its  credit  accounts  in 
view  of  a  coming  financial  stringency  or  industrial 
depression. 

Every  business  man  must,  of  course,  have  a  gen- 
eral knowledge  of  business  methods.  But  the  credit 
man  must  be  somewhat  familiar  with  the  details  of  all 
the  lines  of  business  in  which  his  debtors  are  engaged, 
in  order  that  he  may  determine  from  the  facts  which 
he  has  before  him  concerning  an  applicant  for  credit 
whether  his  capital,  his  sales,  his  expenses,  his  past 
experience,  are  such  as  to  give  promise  of  his  ultimate 
success.  He  must  know  at  least  the  elements  of  com- 
mercial law,  the  statutes  of  exemptions,  the  financial 
responsibility  of  corporation  officers  and  of  the  mem- 
bers of  a  partnership,  the  legal  age  of  open  accounts, 
and  similar  generalities.  He  cannot  have  a  detailed 
knowledge  of  these  facts,  but  if  they  are  merely  a  part 
of  his  mass  of  general  information,  his  credit  making 
will  automatically  and  unconsciously  be  influenced 
and  strengthened  thereby. 

The  second  necessary  characteristic  of  the  credit 
man  is  a  keen  insight  and  an  analytical  mind.  The 
work  of  a  credit  man  is  a  succession  of  decisions, 
each  one  of  importance,  but  necessarily  made  hastily. 
These  judgments  are  not  arbitrary,  but  are  based  on 
a  study  of  certain  groups  of  facts,  usually  of  four 
kinds:  First,  the  general  knowledge  of  the  credit  man 
himself;  second,  impressions  gained  by  him  from  per- 
sonal touch  and  acquaintance  with  the  customer; 
third,  specific  facts  concerning  the  character,  ability 
and  resources  of  the  applicant,  gained  in  various  ways, 
and  fourth,  if  he  is  an  old  customer,  his  record  with 
the  house  itself. 


F.  F.  PEABODY  31 

It  takes  keen  insight  to  at  once  fix  upon  the  vital 
and  decisive  factors  in  this  great  mass  of  material, 
and  sharp  analytical  power  to  sift  the  kernels  from 
the  chaff  and  to  correlate  those  factors  which  are  to 
be  considered  in  connection  with  each  other.  The 
superficial  credit  man  is  liable  merely  to  look  at  a 
debtor's  quick  assets,  at  his  total  outstanding  debts, 
without  going  deeper,  and  especially  without  consid- 
ering his  character  and  qualifications  for  success  and 
his  surroundings.  The  honesty,  good  habits  and  in- 
dustry of  a  debtor,  the  commercial  condition  of  the 
locality  in  which  he  trades,  and  the  esteem  in  which 
he  is  held  there,  are  just  as  much  a  part  of  his  capital 
as  the  cash  he  has  invested  in  the  business  or  the 
amount  of  his  unencumbered  property,  and  are  even 
a  bigger  element  in  his  chances  for  success  These 
items  are  perhaps  harder  to  discover  and  determine 
than  the  mere  statement  of  his  capital  and  debts,  but 
the  good  credit  man  will  lay  much  stress  upon  them. 
In  a  long  report,  on  a  merchant  perhaps  a  thousand 
miles  away,  it  needs  the  most  astute  reading  between 
the  lines  and  the  cleverest  putting  together  of  two 
and  two  to  arrive  at  the  true  condition  of  this  man's 
affairs.     The  problem  is  up  to  the  credit  man. 

The  credit  man's  third  requirement  is  tact,  and 
tact  in  the  broadest  possible  sense.    Tact  means  sym- 

Tact  Most  P^^^y  ^^*^  ^^^^^  people,  the  ability  to 
Essential  put  one's  self  in  their  place  and  under- 
CharacteristiCg^^jj^j  their  condition  without  being  told 
in  so  many  words.  It  implies  an  openness  to  re- 
ceive aid  and  advice,  a  willingness  to  learn  new  facts 
and  change  old  methods.  It  carries  with  it  the  idea 
of  caution  and  carefulness.  No  tactful  man  is  impetu- 
ous; he  weighs  and  considers  all  pertinent  facts  be- 


32  CREDITS  AND  COLLECTIONS 

fore  he  comes  to  a  decision.  Yet  the  very  word  tact 
implies  ability  to  decide  quickly;  an  intuition,  almost, 
of  the  right  course  to  take.  The  man  of  tact  must 
have  a  good  memory,  otherwise  he  will  make  errors 
and  blunders;  he  must  remember  people's  weaknesses 
and  their  sensitive  spots,  in  order  to  avoid  them;  he 
must  remember  their  interests  and  hobbies,  in  order 
to  fraternize  with  them;  he  must  remember  their 
strength  and  their  pride,  in  order  to  appeal  to  their 
vanity. 

Thus  the  tactful,  sympathetic  man  will  learn  all 
he  wishes  from  the  customer  who  is  being  interviewed 
concerning  his  affairs  so  adroitly  that  he  will  go  away 
without  any  loss  of  self-respect  or  any  feeling  of  re- 
sentment, and  yet  leaving  to  the  credit  man  the  infor- 
mation he  desires.  The  credit  man  has  often  to  ask 
and  do  many  things  which  are  unpleasant  and  em- 
barrassing both  for  himself  and  for  the  debtor.  If 
he  can  do  these  things  in  such  a  way  as  to  keep  the 
good  will  of  his  customer,  and  even  make  himself  the 
latter's  confidant  and  adviser,  so  that  the  customer 
will  voluntarily  keep  him  informed  of  his  condition, 
that  is  tact. 

The  ability  to  handle  men  is  in  part  inborn.  Some 
men  we  see  who  seem  without  effort  to  be  able  to  in- 
fluence, to  impress  themselves  upon  their  fellow  men, 
while  others  appear  always  isolated,  at  angles  with 
those  around  them.  But  a  very  good  and  a  very  true 
imitation  of  this  ability  can  be  acquired,  and  nothing 
should  be  so  impressed  upon  young  men  as  the  neces- 
sity of  building  up  within  themselves  an  attractive 
personality,  of  virtually  setting  themselves  to  forcing 
people  to  like  them.  Only  let  me  emphasize  this — the 
man  who  attempts  to  acquire  this  ability  of  handling 
people  should  remember  that  it  must  be  based  upon 


F.  F.  PEABODY  33 

a  real  sincerity,  a  real  sympathy  with  and  human  feel- 
ing for  his  fellows.  Mere  surface  smoothness,  mere 
exuberant  good  fellowship,  will  not  accomplish  the 
object.  There  must  be  an  understanding  and  a  con- 
tinuous study  of  human  nature,  a  charity  for  human 
weakness,  a  fellow  feeling  of  human  interests.  In 
this  connection  it  should  be  especially  brought  before 
.the  credit  man  never  to  take  the  attitude  that  man- 
kind in  general  is  dishonest.  This  standpoint  will  more 
quickly  kill  his  efforts  and  ruin  his  prospects  than 
even  the  opposite  extreme.  It  will  hurt  him  with  his 
trade;  it  will  hurt  him  with  his  house;  it  will  work 
against  his  success. 

In  his  relations  with  the  other  departments  of  his 
house  the  credit  man  can  make  or  mar  his  record. 
Especially  essential  is  it  that  he  be  willing  and  eager 
to  receive  information  and  advice  from  those  other 
factors  in  the  business  which  have  opportunity  to 
learn  and  see  things  pertaining  to  his  work  from  a  dif- 
ferent point  of  view  than  his.  His  relations  with  the 
salesmen  of  the  house  are  particularly  important  and 
delicate.  The  amount  of  harm  which  a  credit  man 
with  too  exaggerated  an  idea  of  the  importance  of  his 
oflBce  and  its  immense  height  over  the  realm  of  the 
salesman  can  do  is  incalculable.  If  only  the  credit  man 
and  the  salesman  will  take  each  other  into  their  con- 
fidence, will  establish  a  reciprocal  information  and 
help  arrangement,  much  profit  will  accrue  to  the  firm 
in  the  way  of  reduced  losses  and  added  sales. 

Caution  and  carefulness  in  the  performance  of 
his  duties  have  been  dinned  into  the  ears  of  the  credit 
Time  for  Cau-  ™^°  ®^  much  that  there  has  been  danger 
tion  in  Cred-  of  his  going  to  the  opposite  extreme.  But 
it-Making  when  it  is  considered  that  more  losses  re- 
sult from  carelessness  than  from  any  other  one  lapse 


34  CREDITS  AND  COLLECTIONS 

on  the  part  of  the  credit  man  himself,  the  emphasis 
can  hardly  be  made  too  strong. 

The  place  and  time  for  caution  are  especially 
worthy  of  attention.  In  the  granting  of  the  first  credit 
to  a  new  customer,  care  is  usually  observed.  The  new 
name  is  probably  wholly  unknown  to  him.  He  in- 
evitably feels  the  need  of  full  information,  and  as 
such  information  is  comparatively  easy  to  secure,  he 
obtains  it  at  once.  He  looks  him  up  in  the  rating 
books;  he  obtains  the  mercantile  reports  on  him  and 
private  statements  from  him.  If  he  concludes  that  it 
is  not  safe  to  extend  the  credit  asked  he  does  not  have 
that  feeling  of  breaking  a  business  connection  and 
losing  a  customer  which  he  has  when  he  refuses  credit 
to  an  old  customer.  There  is  only  one  consideration 
especially  liable  to  undermine  a  credit  man's  caution 
in  making  initial  credits — the  fear  that  if  he  refuses 
an  account,  a  competitor  will  accept  and  profit  by  it. 
This  phase  of  the  matter  should  never  be  allowed  to 
weigh  with  the  credit  man,  for  no  course  of  reasoning 
could  be  more  fallacious.  Not  only  is  he  a  very  poor 
credit  man  who  needs  this  consideration  in  helping 
him  form  his  judgment,  but  it  is  also  most  illogical;  if 
he  believes  the  account  unsafe  in  itself,  and  if  he  has 
the  facts  to  back  his  opinion  which  he  ought  to  have, 
he  should  be  willing  to  let  it  go  to  a  competitor — to 
the  latter's  undoing — ^for  he  will  thus  gain  more  than 
he  loses. 

It  is,  however,  especially  when  an  account  has  run 
on  for  a  long  time,  when  a  constant  succession  of 
orders  promptly  paid  has  lulled  the  alertness  of  the 
credit  man,  that  carelessness  gets  in  its  work.  The 
credit  man,  overwhelmed  with  work,  pressed  for  time, 
will  allow  an  order  to  slip  through  here  and  there  re- 


F.  F.  PEABODY  35 

garding  which  he  is  not  absolutely  sure,  except  that  he 
knows  the  customer  has  been  with  the  house  a  long 
time,  and  has  a  vague  idea  that  he  is  good  and  pays 
promptly.  It  is  on  such  accounts  that  he  is  most  fre- 
quently caught.  The  credit  man  must  be  persistent 
and  painstaking  in  his  methods.  By  some  means  or 
system  he  should  keep  in  touch  with  the  trend  of  all 
of  his  accounts,  both  those  of  his  good  customers  and 
those  of  the  doubtful  ones;  lapses  in  the  one  should 
be  caught  and  taken  up  as  in  the  other. 

In  testing  the  credit  man's  ability  and  success 
by  the  average  amount  of  his  accounts  receivable,  the 
Credit  Man  as  business  man  is  really  testing  his  ability 
Collector  and  as  a  collector.  In  the  judgment  of  many, 
Executive  ^  clever  collector  is  more  important  in 
most  oflBces  than  a  brilliant  credit  man.  By  ability 
to  collect  is  not  meant  the  power  to  extract  money 
from  a  refractory  and  unwilling  debtor,  but  rather  the 
ability  to  impress  and  train  the  debtor,  willing  or 
stubborn,  in  such  a  way  that  he  will  unconsciously  get 
into  the  habit  of  paying  promptly. 

The  prompt  collecting  of  accounts  has  a  triple 
compensation.  It  keeps  outstanding  accounts  down, 
and  thus  requires  less  capital  to  run  the  business.  The 
added  value  of  a  credit  man  who,  by  keeping  his  ac- 
counts receivable  low,  enables  his  employer  to  run  his 
business  with  |100,000  less  working  capital  than  his 
competitor  is  earning  more  than  his  yearly  salary 
right  here.  In  the  second  place,  the  strict  collector  is 
the  best  salesman.  It  is  an  admitted  fact  that  a  cus- 
tomer who  has  a  past-due  account  with  a  house  will 
place  his  current  order  with  another  house;  the  loss  is 
apparent.  Finally,  statistics  and  credit  men  agree 
that  the  great  majority  of  losses  occur  among  overdue 


36  CREDITS  AKD  COLLECTIONS 

accounts;  a  man  who  owes  nothing  cannot  fail,  and  a 
man  who  pays  every  thirty  days  is  most  unlikely  to 
become  insolvent;  the  merchant  who  is  held  strictly  to 
his  payments  will  not  be  likely  to  over-buy,  in  fact,  he 
cannot;  collecting  accounts  when  due  will  reduce  the 
number  of  eggs  which  a  house  has  in  each  of  its  cus- 
tomers' baskets;  insisting  on  prompt  payment  will 
weed  out  the  weaker  brothers. 

In  discussing  the  characteristics  which  the  credit 
man  must  possess  to  satisfactorily  administer  the  af- 
fairs of  the  general  office,  one  point  needs  particular 
emphasis.  The  credit  man  of  the  past  has  often  been 
accused,  whether  justly  or  unjustly  need  not  be  deter- 
mined here,  of  preferring  old  ways  and  opposing  new 
ideas  and  methods  because  of  the  change  involved  and 
the  trouble  and  expense  incurred  in  adopting  them. 
Many  of  the  older  school  of  credit  men  are  moving 
along  in  the  same  old  way,  not  realizing  that  the 
doubling  of  the  volume  of  their  firm's  business  more 
than  doubles  the  details  of  their  department.  This 
type  of  credit  man  refuses  to  install  some  modern 
system  for  taking  these  details  off  his  shoulders,  for 
dividing  his  work,  fearing,  perhaps,  that  the  work 
which  he  has  been  doing  himself,  if  transferred  to 
someone  else,  will  not  be  done  right.  In  thus  giving 
his  time  to  the  performance  of  petty  details,  or  even 
to  the  accomplishment  of  an  overplus  of  important 
work,  he  comes  to  be  looked  upon  as  the  busiest  man 
in. the  house,  an  expression  which  is  very  often  heard. 

For  a  man  in  the  position  of  credit  manager  to  be 
over-busy  must  surely  be  considered  a  mistake  and  an 
injury  to  the  best  interests  of  the  house.  A  credit 
man  who  performs  a  lot  of  detail  and  cumbersome 
work,  occupying  all  his  attention  and  absorbing  all  his 


F.  F.  PEABODT  37 

efforts,  who  allows  a  mass  of  unfinished  work  to  ac- 
cumulate, thus  necessarily  slighting  all  his  work,  the 
most  delicate  and  important  among  the  rest,  is  prac- 
ticing false  economy.  A  ten-dollar-a-week  clerk  and  a 
well-regulated  system,  which  would  take  merely  the 
routine,  not  the  responsibility,  off  his  shoulders,  could 
save  him  much  nervous  energy  and  irritation  and  leave 
his  time  and  mind  open  for  more  valuable  work,  for 
real  thinking,  which  is  the  great  need  of  business,  as 
of  all  lines  of  activity  to-day.  A  business  attains  the 
best  results  when  its  credit  department — as  repre- 
sented by  the  credit  man — keeps  up  to  date  in  its 
work.  The  credit  man  of  yesterday  must  realize  that 
conditions  have  changed  and  that  he  must  alter  his 
methods  to  meet  them ;  the  credit  man  of  to-day  should 
prepare  for  the  same  situation,  for  his  conditions  will 
also  change. 

So  the  credit  man  must  be  modern  in  his  methods. 
He  must  see  that  his  credit  department  system  and 
his  general  oflBce  system  handle  details  quickly  and 
accurately,  and  that  this  system  sifts  out  of  the  details 
the  vital  facts  which  he  should  know  and  presents 
them  to  him  quickly  and  in  concise,  comprehensive 
form,  leaving  him  time  for  thought  on  problems  which 
will  always  be  present  for  his  solution. 


CHAPTER    IV 

THE    FUNCTION    AND    WORK    OF    THE    COM- 
MERCIAL AGENCY 
By  T.  J.  ZIMMERMAN 

The  point  at  which  the  commercial  agency  enters 
into  credit  operations  is  between  the  receipt  of  the 
order  and  the  shipment  of  the  goods.  Credit  rests  upon 
the  seller's  confidence  in  the  buyer's  ability  to  pay; 
confidence  results  from  favorable  knowledge  of  a 
man's  character,  ability  and  circumstances.  In  order 
to  decide  whether  his  house  wishes  to  extend  credit 
to  an  applicant,  to  determine  the  amount  of  credit 
which  it  is  advisable  to  extend,  and  to  decide  upon  the 
specific  terms  on  which  this  credit  is  to  be  granted,  the 
credit  man  must  have  certain  general  and  specific  in- 
formation. Such  information  the  commercial  agency 
has  made  it  its  function  to  furnish. 

The  commercial  agency  is  strictly  a  credit  instru- 
ment— a  product  of  the  credit  regime.  Were  all  trade 
and  business  done  on  a  cash  basis,  there  would  be  no 
need  or  place  for  it.  It  has  grown  and  developed  in 
the  last  sixty  years  as  the  result  of  a  definite  need 
and  an  expressed  demand  on  the  part  of  the  busi- 
ness world.  While  the  result  of  the  credit  system, 
however,  it  has  in  its  turn  been  instrumental  in  the 
vast  extension  of  credit  transactions  and  the  resultant 
increase  of  business  operations  in  the  last  half  century. 

The  commercial  agency  had  its  origin  in  the  panic 
of  1837.  The  immense  losses  incurred  during  this 
period  of  wildcat  money  and  mushroom  banks  by  mer- 

38 


T.  J.  ZIMMERMAN  39 

chants  all  over  the  East,  especially  in  New  York,  which 
at  that  time  was  the  mercantile  center  of  the  country's 
wholesale  business,  made  it  absolutely  incumbent  on 
them  to  devise  some  means  by  which  they  could  de- 
termine what  merchants  were  safe  credit  customers. 
Although  at  the  time  selling  on  credit  was  not  so 
widely  practiced  or  plentifully  supplied  with  determin- 
ing and  safeguarding  facilities  as  now,  the  time  of  the 
individual  credits  granted  was  much  longer.  It  was 
nothing  unusual  to  give  a  year's  time  for  the  payment 
of  an  invoice  of  goods,  and  six  months  was  the  usual 
allowance. 

Before  this  the  practice  had  been  to  keep  repre- 
sentatives on  the  road  whose  duty  it  was  to  visit  those 
Oriffin  of  ^^  ^^^  customers  who  were  in  any  way  ac- 
Mercantile  cessible  every  six  or  twelve  months,  make 
Agencies  ^  more  or  less  careful  examination  of 
their  financial  circumstances,  and  report  their  infor- 
mation and  conclusions  to  the  house.  Personal  inter- 
views with  customers  were  believed  in  and  depended 
upon  to  a  large  extent  in  the  determination  of  their 
reliability.  For  at  that  time  the  retail  merchant,  if  he 
was  within  the  confines  of  civilization,  paid  his  regular 
annual  or  semi-annual  visit  to  New  York,  Philadelphia, 
or  whatever  city  was  the  mercantile  center  of  his  dis- 
trict, and  did  his  buying  in  person.  Thus  the  head  of 
the  wholesale  concern  was  personally  acquainted,  and 
probably  even  a  friend — for  they  mingled  social  with 
business  relations  in  these  visits — of  many  of  his  cus- 
tomers, and  acquired  a  close  familiarity  with  their 
circumstances  and  even  established  a  personal  bond 
between  them  and  himself. 

The  weakness  of  these  methods  lay  in  the  fact 
that  just  those  of  a  firm's  customers  concerning  whom 


40  CREDITS  AND  COLLECTIONS 

it  most  needed  information,  and  who  required  the 
closest  watching,  were  not  reached  at  all.  This  was 
before  the  days  of  railroads  and  telegraphs.  New 
York  houses  were  shipping  goods  into  the  wilderness 
of  Ohio  and  Tennessee,  even  away  across  the  unknown 
continent  to  the  coast.  Nothing  could  be  learned  re- 
garding the  status  of  these  customers,  the  goods  them- 
selves were  in  transit  three  or  six  months  before  reach- 
ing the  consignee,  and  a  year  might  elapse  before  the 
firm  even  knew  of  their  safe  arrival.  But  these  two 
methods  were  not  even  satisfactory  as  applied  to  those 
customers  reached  by  them.  The  firm's  reporters  were 
far  away,  they  could  make  only  a  cursory  examination, 
and  only  at  long  intervals  and  at  great  expense,  while 
the  impressions  derived  from  personal  contact  with 
customers  were  not  infallible. 

In  response  to  needs  of  such  conditions,  made 
acute  by  the  heavy  losses  of  the  panic  of  '37,  came  the 
commercial  agency.  It  was  not  then  what  it  is  now. 
Its  reports  were  meager.  Its  lists  were  incomplete. 
Its  judgment  and  conclusions  were  necessarily  often 
based  on  incomplete  and  false  data. 

Time,  experience  and  the  momentum  of  long  years, 
however,  have  remedied  many  of  these  defects,  until 
now  the  commercial  agency  plays  a  most  important 
and  weighty  part  in  the  business  world.  It  has  realized 
that  absolute  disinterestedness  and  impartiality  are 
necessary  for  the  making  of  reliable  ratings;  it  treats 
all,  small  and  great,  equally  as  to  rating  and  service; 
its  information  is  secured  and  judgment  made  from 
such  information,  by  the  most  experienced,  careful  and 
unprejudiced  men. 

The  information  which  the  agency  affords  is  given 
in  three  forms:  A  quarterly  book  is  issued  by  the 


T.  J.  ZIMMERMAN  41 

agency,  containing  the  name,  the  business,  the  capital 
rating  and  the  credit  rating  of  every  firm  or  individual 
Work  and  ^°  ^^^®  country  or  Canada  engaged  in  the 
Service  of  mercantile  pursuits.  The  agencies  sup- 
Agencies  pjy  jjQ  information  concerning  pri- 
vate individuals  or  such  as  do  not  follow  a  strictly 
mercantile  calling.  In  the  second  place,  daily  sheets 
are  published  by  the  agency,  in  which  are  noted  all 
failures  or  bankruptcies,  new  incorporations,  the  es- 
tablishment of  new  business  houses  and  changes  in 
ownership.  Lastly,  the  agency  furnishes  what  are 
called  special  reports  concerning  any  firm  or  in- 
dividual engaged  in  business,  on  specific  request  from 
an  agency  subscriber. 

Any  business  man  may  become  a  subscriber  to  an 
agency  by  the  payment  of  a  yearly  subscription,  in  re- 
turn for  which  he  receives  twice  a  year  the  rating  book 
and  the  daily  sheets;  in  addition,  he  has  the  privilege 
of  requesting  special  reports  on  any  individual  or  firm 
rated  at  a  slight  cost  per  report.  Request  for  such 
reports  must  be  made  out  on  a  special  blank  supplied 
by  the  agency,  on  the  understanding  that  the  informa- 
tion asked  for  is  to  be  used  for  a  strictly  legitimate 
mercantile  purpose,  and  for  no  other,  and  is  to  be  kept 
secret.  This  pledge  is  necessary  in  order  to  prevent, 
so  far  as  possible,  those  who  are  not  subscribers  from 
participating  in  the  benefits  of  the  agency's  service, 
and  to  guard  against  the  use  of  the  information  for 
some  ulterior  or  malicious  purpose. 

A  special  report  contains  the  detailed  information 
about  a  particular  individual  or  firm:  the  character 
of  the  individual,  or,  if  it  is  a  partnership  or  corpora- 
tion, the  individuals  involved,  as  judged  by  his  past 
history,  life,   habits   and   reputation;   his  ability,   as 


'42  CREDITS  AND  COLLECTIONS 

judged  by  his  business  record  and  the  present  condi- 
tion of  his  affairs ;  his  wealth,  not  only  that  invested  in 
the  particular  business  under  consideration,  but  any 
other  property  or  interests  which  he  may  have;  his 
debts,  so  far  as  they  can  be  arrived  at;  his  general 
social  and  business  circumstances  and  connections — 
information  on  all  these  subjects  is  presented.  Then 
follow  details  more  particularly  concerning  the  busi- 
ness in  question,  as  distinguished  from  the  man  or  men 
behind  it:  the  capital,  the  outstanding  accounts,  the 
debts  and  their  character,  the  amount  and  nature  of 
the  business  done,  the  firms  from  whom  goods  are 
bought  and  to  whom  money  is  owed,  the  existence,  if 
any,  of  secured  creditors,  and  general  statements  re- 
garding the  business.  The  whole  report  is  concluded 
by  a  general  statement  concerning  the  worth  of  the  in- 
dividual, the  extent  to  which  he  can  be  trusted,  and 
the  manner  in  which  he  should  be  handled. 

The  credit  man  to  whom  this  report  comes  sees 
not  only  the  details  presented,  but  his  knowledge  and 
experience  tell  him  much  more  and  enable  him  to 
read  in  the  report  facts  not  outwardly  apparent, 
and  to  put  the  facts  given  into  their  proper  re- 
lation. A  special  report  is  not  intended  to  be  a 
complete  basis  from  which  the  credit  man  shall  make 
his  judgment;  it  is  put  in  such  a  form  that,  combined 
with  his  own  knowledge,  experience  and  insight,  he 
may  reach  a  definite  conclusion. 

How  is  this  information,  given  to  the  credit  man 
in  the  three  forms  of  quarterly  books,  the  daily  sheets, 
Organization  ^°^  *^®  special  reports,  secured  by  the 
of  the  agency?    To  tell  this  it  will  be  best  to 

Agencies        begin  with  the  last,  the  special  report 

The  agency  has  an  organization  of  thousands  of 


T.  J.  ZIMMERMAN  43 

reporters  who  are  constantly  gathering  facts  concern- 
ing mercantile  houses.  In  the  large  cities  of  the  coun- 
try, where  independent  district  offices  are  located,  a 
force  of  reporters  is  constantly  at  work.  The  work 
is  specialized  in  these  large  cities:  one  man  has  charge 
of  each  line  of  business  in  the  wholesale  trade,  and 
the  territory  outside  of  the  business  center  of  the 
city  is  divided  up  into  districts,  to  each  of  which  a  re- 
porter is  assigned.  These  reporters  are  kept  at  the 
same  post  for  years  and  become  thoroughly  familiar 
with  the  detailed  facts  and  conditions  of  their  line  of 
business  or  their  districts,  and  with  the  houses  and  in- 
dividuals in  them.  They  keep  track  of  and  report  to 
their  managers  the  latest  mercantile  developments, 
tendencies,  rumors,  and  even  impressions,  which  they 
obtain. 

Each  of  the  district  offices  has  sub-offices  in 
lesser  cities  attached  to  it,  numbering  from  two  to 
eight,  depending  on  the  size  of  the  territory  and  im- 
portance of  its  business  transactions.  Each  sub-of- 
fice has  oversight  over  the  territory  around  it,  organ- 
izes it  into  reporting  districts,  and  keeps  track  of  its 
commercial  affairs  just  as  the  offices  in  the  larger 
cities  do  in  their  territory.  Thus,  the  sub-office  at 
Peoria,  111.,  having  charge  of  certain  smaller  towns 
and  the  territory  around  it,  has  several  reporters  al- 
ways attached  to  it,  who  constantly  make  the  rounds 
of  this  territory,  just  as  the  city  man  does  in  his 
district. 

In  addition  to  these  district  reporters,  the  agency 
has  in  its  employ  in  the  majority  of  towns  where  there 
is  neither  a  district  nor  sub-office  an  attorney,  whose 
duty  it  is  to  report  into  the  sub-office  straight  news 
items,  such  as  failures,  new  businesses  and  changes  in 


44  CREDITS  AND  COLLECTIONS 

ownership,  which  cannot  wait  for  the  visit  of  the  reg- 
ular reporter,  and  also  to  make  special  reports  in 
urgent  cases.  These  men  do  not,  of  course,  give  all  their 
time  to  the  work  of  the  agency.  Every  hamlet,  every 
mercantile  business,  no  matter  of  what  proportion,  is 
thus  covered  by  this  system  of  reporters  and  repre- 
sentatives. 

The  reporters  make  their  reports  regularly,  the 
district  city  reporters  daily,  the  country  reporters 
periodically  at  longer  intervals.  The  work  they  do,  or 
the  information  they  collect,  may  be  divided  into  three 
classifications.  First,  they  report  the  strictly  news 
items  which  are  used  for  making  up  the  daily  sheets. 
Such  items,  when  they  come  up  in  sub-offlces,  must,  of 
course,  at  once  be  telegraphed  to  the  district  office 
from  which  the  daily  sheets  are  issued.  The  agency 
has  a  telegraphic  code  of  its  own,  which  is  always  used 
in  making  reports  of  any  kind  by  wire.  This  assures 
the  absolute  secrecy  of  the  information  and  effects 
great  economy  in  the  expense  of  transmission. 

Second,  the  reporters  give  an  account  of  what 
may  be  called  their  impressions — that  is,  it  may  seem 
to  them  that  a  business  is  retrograding;  that  the 
owner  or  manager  is  growing  careless;  that  the  stock 
is  being  allowed  to  degenerate,  or  some  man  may  tell 
them  that  his  firm  has  put  in  a  new  line,  increased  its 
capital  or  made  some  other  change.  All  these  items 
appear  in  the  periodic  reports  which  the  reporter 
makes. 

The  third  duty  of  the  reporters  is  to  make  the 
special  reports  which  are  called  for.  Thus,  if  a  re- 
quest comes  into  the  Chicago  district  office  for  a  spe- 
cial report  on  a  merchant  in  Galesburg,  111.,  and  there 
is  no  recent  report  on  file  in  the  office,  this  request  is 


T.  J.  ZIMMERMAN  45 

referred  to  the  Peoria  sub-office,  in  whose  district 
Galesburg  is  situated,  and  a  reporter  from  that  oflSce 
looks  up  the  merchant  and  makes  the  report.  Re- 
ports grow  out  of  either  a  specific  request  from  a 
subscriber,  or,  as  is  more  generally  the  case  when 
a  new  business  is  organized,  the  agency  at  once  sends 
a  reporter  to  get  a  report  on  the  new  concern,  not 
only  that  it  may  have  a  report  ready  should  it  be 
called  for,  but  also  that  it  may  insert  the  new  house, 
with  proper  ratings,  in  the  next  quarterly  book. 

When  these  special  reports  come  into  the  district 
office  they  are  manifolded,  and  if  they  are  of  sufficient 
importance,  that  is,  if  it  is  probable  that  the  firm 
investigated  will  seek  credit  in  some  other  districts, 
a  duplicate  of  the  report  is  sent  to  those  district 
offices,  where  they  are  kept  on  file  and  sent  out  in  re- 
sponse to  inquiries. 

The  information  in  the  reports  is  obtained  from 

two  sources,  direct  and  indirect.     A  statement  is  ob- 

„  -      tained  from  the  individual  or  firm  under 

Sources   or 

Agencies*  investigation,  who  is  asked  a  regular 
Information  g^ries  of  questions  regarding  his  past 
history,  capital,  open  accounts,  debts,  and  so  on.  This 
information  the  reporter  will  judge,  qualify  and 
amplify  from  quick  personal  impressions  which  he 
gets  concerning  the  individual  and  whatever  part  of 
the  business  he  sees.  Then  some  information  is  ob- 
tained indirectly,  from  other  people,  from  the  past 
knowledge  of  the  reporter  and  the  agency  concerning 
the  person  in  question,  and  from  hints  and  impressions 
picked  up  here  and  there. 

Of  late  years  the  custom  has  grown  of  obtaining 
the  signature  of  the  individual  investigated  to  the 
financial  statement  which  he  himself  makes.    If  this 


46  CREDITS  AND  COLLECTIONS 

statement  is  proved  in  any  later  developments  to  have 
been  purposely  falsified,  the  party  is  legally  liable  for 
obtaining  goods  under  false  pretenses,  since  the 
acknowledged  purpose  of  such  a  report,  it  is  always 
understood,  is  to  afford  a  basis  for  the  extension  of 
credit.  The  credit  man  who  has  such  a  signed  state- 
ment before  him  in  deciding  upon  the  extension  of 
credit  has  something  tangible  and  sound  to  act  upon, 
and  his  judgment  is  facilitated  thereby. 

The  special  reports  kept  in  stock  are  corrected 
periodically — regularly  twice  a  year.  Except  in  spe- 
cial cases  the  agency  does  not  undertake  to  give  other 
than  the  stock  report  on  hand  when  one  is  called  for; 
nor  is  it  expected,  for  generally  special  reports  are 
wanted  at  once  without  delay;  in  most  cases  their 
value  to  a  credit  man  would  be  lost  entirely  if  there 
were  more  than  a  couple  of  hours'  delay  in  securing  it. 

The  agency  has  other  sources  of  information  be- 
sides its  reporters.  In  the  district  offices  a  force  of 
clerks  is  constantly  at  work  examining  the  state  re- 
ports of  incorporations  and  the  court  reports  of  bank- 
ruptcies, and  even  of  suits  brought  against  firms, 
for  a  man's  financial  standing  can  often  be  judged  by 
the  suits  brought  against  him.  Trade  and  financial 
publications  and  the  newspapers  are  also  examined 
carefully  and  systematically,  and  often  afford  infor- 
mation. 

The  facts  thus_  obtained  for  the  daily  sheets  serve 
as  the  basis  and  material  for  the  corrections  in  the 
rate  book  issued  by  the  agency  in  revised  form  every 
three  months.  As  news  of  additions,  changes  or  sub- 
tractions in  regard  to  the  business  houses  of  the 
country  are  received,  or  as  information  warranting  a 
change  of  rating  comes  in  to  a  district  office,  the 


T.  J.  ZIMMERMAN  47 

necessary  corrections  are  at  once  indicated  on  the  last 
rate  book,  and  at  the  end  of  every  three  months  these 
corrections  are  gathered  together  and  a  new  book  in- 
corporating them  is  issued. 

Two  ratings  are  given  in  the  rate  book  for  each 
business  house  rated — capital  rating,  which  indicates 
How  the  *^®  approximate  amount  of  capital  in- 
Ratings  Are  vested  in  the  business,  and  the  credit 
Determined  mating,  which  is  the  judgment  of  the 
agency  as  to  the  confidence  which  can  be  placed  in 
the  individual  or  firm  rated.  These  ratings  are  usually 
indicated,  not  by  figures  or  words,  but  by  short  ab- 
breviations. The  absence  of  either  rating  opposite  any 
name  does  not  necessarily  indicate  a  very  poor  condi- 
tion, but  merely  means  that  for  some  reason  or  other 
the  agency  has  not  been  able  to  obtain  information 
upon  which  to  base  a  judgment. 

How  are  these  ratings  made?  This  is  the  delicate 
and  most  critical  point  in  an  agency's  business.  The 
capital  rating  does  not  merely  represent  the  statement 
made  by  the  interested  individual  himself  to  the 
agency  reporter;  it  is  not  even  the  amount  of  cash 
known  to  be  invested  in  the  business,  nor,  if  it  be  a 
corporation,  the  amount  of  the  nominal  or  paid-up 
stock.  The  capital  rating  is  really  the  judgment  of  the 
rater  as  to  the  amount  of  commercial  value  or  the  par 
value  of  the  assets  which  the  firm  rated  may  be  con- 
sidered to  have  in  its  business,  all  things  regarding  the 
firm  and  the  business  taken  into  consideration.  The 
capital  rating  really  purposes  to  estimate  what  this 
business  is  worth  in  money,  its  realizable  net  value. 
The  invested  capital  or  the  capital  stock  of  a  firm 
may  remain  unchanged  from  year  to  year  and  yet  its 


48  CREDITS  AND  COLLECTIONS 

capital  rating  may  be  changed  time  and  again  in  the 
agency's  quarterly  book  during  this  time. 

In  like  manner,  the  credit  rating  does  not  merely 
indicate  a  certain  fixed  percentage  of  the  capital  in- 
vested for  which  the  average  business  man  may  be 
considered  good.  This  rating,  even  more  than  the  cap- 
ital rating,  is  the  judgment  of  the  rater,  all  things  con- 
sidered, as  to  the  confidence  which  can  be  placed  in 
this  man  or  firm.  It  is  the  result  of  a  careful  study 
of  this  man's  character,  his  present  social  and  com- 
mercial condition,  his  business  history  for  a  score  of 
years  past.  It  is  the  rater's  opinion  of  the  man's  in- 
tegrity and  resources  expressed  in  terms  of  money. 

That  the  commercial  agency  fills  a  need  and  occu- 
pies a  legitimate  place  in  the  business  world  is  proved 
by  the  immense  expansion  of  its  functions  and  activi- 
ties in  the  last  half  century,  the  vast  extension  of 
credit  operations  in  the  same  period,  and  the  trust  and 
confidence  reposed  in  it.  This  description  of  its  inter- 
nal organization,  its  scope  and  its  volume  of  detail 
is  the  best  evidence  of  the  place  it  fills  in  the  credit 
world;  it  is  the  most  indispensable,  the  oftenest  used 
and  the  most  versatile  tool  with  which  the  credit  man 
is  equipped. 


CHAPTER     V 

THE     INTERCHANGE     OF     LEDGER     EXPERI- 
ENCES 

By  H.  a.  wheeler 
Vice-President,  The  Credit  Clearing  House 

No  subject  is  more  prominently  before  the  credit 
men  of  the  country  to-day  than  that  of  perfecting  a 
system  for  the  interchange  of  credit  or  ledger  ex- 
periences. 

That  it  deserves  first  place  among  the  topics 
under  consideration  is  proved  by  the  fact  that,  while 
the  newest  movement  in  the  field  of  credit  reporting, 
it  is  exercising  a  most  beneficent  influence  over  gen- 
eral business  conditions,  and,  if  indications  point 
truly,  is  destined  in  the  future  to  become  a  most 
potent  factor  within  the  reach  of  credit  men  in  safe- 
guarding the  credit  hazard,  preventing  fraudulent 
failures  and  providing  an  impartial  and  effective 
medium  for  the  adjustment  of  disputes  between 
debtor  and  creditor. 

If  these  things  be  true,  a  careful  study  of  the 
effectiveness  of  this  system  will  fully  repay  any 
grantor  of  credit  who  desires  to  provide  himself  with 
the  best  means  for  reducing  his  ratio  of  loss  by  bad 
debts. 

It  will  bear  repetition  that  the  purpose  of  the 
interchange  system  is  to  establish  an  impartial  me- 
dium between  debtor  and  creditor  and  between 
creditors  themselves,    providing    a    system    whereby 

49 


50  CREDITS  AND  COLLECTIONS 

those  who  are  interested  in  any  account  may  freely 
and  unreservedly  interchange  the  facts  contained  in " 
their  ledgers,  without  the  necessity  of  direct  refer- 
ence each  to  the  other,  without  divulging  this  in- 
formation under  their  own  name,  and  at  all  times 
receiving  in  exchange  for  items  contributed  by  them 
the  combined  experiences  of  all  others  interested  in 
the  account.  Thus  the  reciprocity  becomes  perfect 
and  the  knowledge  of  trade  conditions  is  shared  alike 
by  all  who  contribute  to  the  report. 

The  interchange  of  ledger  experiences  is  not  ex- 
ploited as  a  new  idea;  but  the  application  of  a 
method,  or  plan,  whereby  an  exchange  of  these  facts 
can  be  made,  with  the  least  possible  labor,  and  the 
best  possible  result,  is  new  in  the  field  of  credit  re- 
porting. The  movement  which  brought  the  organized 
interchange  system  into  being  is  practically  the  only 
movement  that  has  taken  place  in  the  agency  world 
during  the  last  half  century  differing  in  any  measure 
from  the  methods  employed  and  the  character  of  in- 
formation furnished  in  the  beginnings  of  the  busi- 
ness. 

General  and  antecedent  information  is  obtainable 
from  a  great  variety  of  sources;  different  correspon- 
dents will  have  different  ideas  with  regard  to  the 
worth  and  character  and  prospects  of  a  merchant 
upon  whom  a  report  is  being  written ;  inquiry  through 
different  sources,  or  from  different  agencies,  will  prob- 
ably develop  a  differing  line  of  facts  or  impressions, 
and  in  this  sense  may  be  valuable  to  the  creditor. 

Trade  information  can  be  obtained  only  from  the 
ledgers  of  the  creditors ;  there  can  be  no  diversity,  and 
a  dozen  interchange  systems  would  only  add  to  the 
labor  involved  in  the  credit  office,  without  increas- 


H.  A.  WHEELER  51 

ing  the  value  of  the  service  in  the  slightest  degree. 

The  seeking  of  trade  information  through  direct 
application  to  references,  if  capable  of  development 
in  the  broadest  sense,  would  doubtless  be  preferred 
over  any  other  method;  but  its  limitations  must  be 
apparent  to  any  observer,  and  in  this  day,  when  every 
means  is  sought  to  shorten  labor  and  attain  the  lar- 
gest result  with  the  least  delay  and  effort,  it  would 
be  impossible  to  establish  a  system  for  interchange  of 
ledger  experiences  between  interested  creditors  upon 
the  basis  of  direct  correspondence. 

As  an  illustration,  we  will  suppose  that  a  mer- 
chant's account  is  active  upon  the  ledgers  of  fifteen 
wholesale  houses  and  in  a  given  season  he  is  seeking 
credit  from  five  concerns  that  have  never  sold  him 
before.  We  will  suppose  that  all  of  the  twenty 
houses  are  interested  in  anything  that  pertains  to 
this  merchant's  credit,  and,  for  the  sake  of  argument, 
that  each  of  the  twenty  knew  the  other  nineteen  to 
be  interested,  and,  desiring  a  full  trade  report,  were 
to  dictate  letters  to  all  interested  parties,  asking  for 
the  condition  of  the  account  on  a  particular  day,  or 
within  a  given  month.  It  will  readily  be  observed 
that  twenty  houses  will  write  to  nineteen  others  for 
this  information,  and,  including  replies,  will  necessi- 
tate 760  communications,  the  postage  on  which 
amounts  to  |15.20,  and  the  time  of  dictation  and 
writing  probably  beyond  fair  computation.  Could 
any  credit  department  cope  with  the  labor  involved 
in  this  system?  Could  the  necessary  correspondence 
be  properly  answered  or  the  returns  cared  for  when 
received?  Would  not  the  files  become  so  bulky  as  to 
be  impossible  to  handle? 

Now,  all  that  could  be  obtained  as  a  result  of 


52  CREDITS  AND  COLLECTIONS 

these  760  letters  would  be  contained  in  a  single  clear- 
ance of  a  complete  interchange  organization,  when, 
in  response  to  an  inquiry,  each  house  is  asked  for  its 
experience;  the  twenty  experiences  are  centered  at 
the  point  of  inquiry;  the  information  tabulated  in 
the  proper  form  and  a  copy  of  the  report  passed  back 
to  every  contributing  house.  Thus,  by  a  simple  oper- 
ation and  at  an  expense  of  cents,  where  otherwise  dol- 
lars would  be  required,  every  interested  creditor  is 
in  possession  of  the  full  facts  at  the  same  time  and 
under  precisely  the  same  conditions,  yet  with  the 
added  advantage  that  names  of  contributors  are  not 
known  and  the  form  of  compilation  permits  a  quick 
analysis  of  the  information  either  by  markets  or  by 
lines  of  trade. 

The  president  of  The  Audit  &  Appraisement  Com- 
pany of  America,  in  speaking  before  the  Philadelphia 
Credit  Men's  Association  recently,  dwelt  upon  the 
short  average  life  of  business  enterprises  and  the  vital 
necessity  for  closely  watching  accounts  on  the  ledger, 
if  loss  would  be  avoided.  Organized  interchange  pro- 
vides the  only  means  for  thus  watching  accounts  in 
the  light  of  one's  own  and  one's  competitor's  ledger, 
and  is  unique  in  that  it  brings  to  the  credit  ofQce,  vol- 
untarily, a  number  of  reports  many  times  that  in- 
quired for,  delivered  because  somewhere  through  the 
system  the  report  has  been  revised  and  the  interested 
creditor  has  contributed  his  experience. 

The  value  of  this  particular  service  cannot  be 
overestimated,  inasmuch  as  it  draws  the  attention  of 

An  Automatic*^®  c^^*^'^*  °^a°  *«  ^^^*^  *^^*  oftentimes 
Danger  would  never  be  discovered  in  any  other 

Signal  ^g^y       Buyers  invariably  show  decided 

favoritism  in  matter  of  settling  accounts  with  certain 


H.  A.  WHEELER  53 

houses.  This  is  not  to  be  accounted  for,  except  that 
a  buyer  has  fallen  into  the  habit  of  promptly  paying 
one  bill,  where  he  allows  another  to  drag,  or  desires 
to  establish  a  record  for  prompt  payment  for  pur- 
poses of  reference. 

Upon  the  ledger  of  the  house  which  is  being  paid 
in  a  satisfactory  manner  the  record  shows  only  fav- 
orable to  the  buyer.  There  is  no  need  for  inquiry 
upon  this  account,  because  it  is  being  carried  strictly 
in  accordance  with  terms  of  sale.  It  does  not  follow 
because  the  buyer  is  prompt  in  .one  case  that  he  will 
be  equally  prompt  in  all;  but  there  is  no  especial  rea- 
son for  the  house  whose  account  is  properly  cared 
for  making  inquiry,  and,  therefore,  the  account  is  car- 
ried along,  and  perchance  increased,  without  the  usual 
periodical  investigation. 

The  interchange  report  forces  upon  this  satisfied 
creditor  a  report  on  this  buyer  as  often  as  such  re- 
port may  be  called  for  by  any  house  interested  in  the 
case,  and  some  day  there  comes  to  the  desk  of  the 
credit  man  a  report  which  shows  that  his  satisfactory 
customer  is  becoming  badly  involved  with  other 
houses.  The  information  is  timely,  and  enables  him 
to  lower  his  credit  line  and  get  the  account  down 
to  a  place  where  it  may  be  safely  carried  and  closely 
watched  through  future  interchanges,  to  see  that  the 
unfavorable  condition  does  not  become  an  absolute 
menace  to  the  life  of  the  account. 

Fraudulent  overbuying  is  discovered  through  an 
interchange  system  when  no  other  agency  system  can 
lend  the  slightest  aid.  Every  year  brings  its  full 
quota  of  merchants  who  have  built  up  a  good  credit 
by  discounting  all  bills,  who  for  some  reason  find 
themselves  either  in  a  position  where  it  becomes  nee- 


54  CREDITS  AND  COLLECTIONS 

es&ary  to  largely  increase  their  stock  to  overcome 
losses  made  outside  their  business,  or  to  purchase 
largely  for  the  exclusive  purpose  of  disposing  of  the 
stock  at  sacrifice  prices  and  making  a  settlement 
with  their  creditors  en  as  low  a  basis  as  possible. 
That  merchant  who  has  sought  to  buy  beyond  his 
legitimate  needs,  or  in  other  than  his  legitimate  ter- 
ritory, is  shown  up  through  the  compilation  of  orders 
placed,  which  clearly  indicates  excessive  purchasing 
in  its  relation  to  the  previous  highest  credit  which  he 
has  enjoyed. 

It  oftentimes  happens  that  a  merchant  is  led  to 
buy  excessively  through  the  importunities  of  sales- 
men, who  argue  that  prices  will  advance  and  that  it 
is  wise  to  provide  a  large  stock  in  anticipation  of  a 
rising  market.  These  men  are  often  saved  from  their 
own  indiscretion  by  the  interchange  report,  orders  be- 
ing cut  down  to  a  safe  basis  as  a  result  of  an  accurate 
knowledge  on  the  part  of  the  credit  man  as  to  the 
volume  of  purchases  in  the  respective  lines  of  goods 
in  which  the  merchant  deals. 

Interchange  information  often  preserves  a  mer- 
chant's life  and  continues  him  as  a  good  customer, 
_  .,.,...  when  a  lesser  knowledge  of  the  facts 
in  Work  of  contained  in  the  ledgers  of  the  creditors 
Collections  would  perhaps  cause  serious  trouble  by 
an  effort  to  enforce  the  collection  of  delinquent  ac- 
counts at  a  time  when  the  merchant  would  be  pow- 
erless to  pay.  Where  a  clearance  shows  an  honest 
merchant  largely  indebted,  and  unable  because  of  un- 
fortunate local  conditions,  such  as  competition  with 
bankrupt  stock,  or  crop  failure,  to  meet  his  obligations 
at  maturity,  the  creditors,  knowing  the  condition  of 
each  other's  account,  will  be  interested  in  getting  to- 


H.  A.  WHEELEE  55 

gether,  arranging  for  joint  action  with  regard  to  the 
case,  all  agreeing  not  to  push  their  claims,  but  to 
give  the  merchant  time  to  work  out  of  his  diflficulty. 
In  the  end  not  only  will  they  preserve  a  customer 
whose  trade  will  have  great  value  in  the  future,  but 
they  will  receive  one  hundred  cents  on  the  dollar  for 
their  accounts. 

These  are  aids  to  the  credit  department  not  found 
in  any  other  system  of  agency  information,  and  pos- 
sible of  development  through  the  broader  co-operation 
of  credit  men,  to  a  degree  that  will  make  the  loss 
account  but  a  fraction  of  what  has  heretofore  been 
regarded  a  legitimate  and  satisfactory  figure. 

The  assistance  to  the  credit  department  in  col- 
lecting chronically  delinquent  accounts  is  powerful 
beyond  conception  and  rests  entirely  in  the  influence 
of  an  interchange  system  over  the  mind  of  a  debtor, 
when  he  is  advised  that,  unless  an  account  is  paid  upon 
presentation  of  draft,  or  statement,  the  record  of  non- 
payment becomes  a  permanent  record  in  the  general 
interchange  file,  is  made  a  part  of  every  report  as 
written,  and  must  necessarily  impair  his  credit  with 
the  houses  whose  goods  are  most  to  be  desired. 

Equally  strong  is  the  influence  of  the  interchange 
system  in  correction  of  trade  abuses  by  demonstrat- 
ing the  results  which  must  inevitably  follow  the  con- 
tinued practice  of  unbusinesslike  methods,  such  as  re- 
turning goods,  countermanding  orders,  making  un- 
just claims,  taking  more  discount  than  entitled  to, 
and  many  other  abuses  from  which  the  wholesaler 
suffers  constantly  and  which,  if  not  checked  by  some 
united  action,  will  still  further  reduce  the  margins  of 
profit,  already  low  enough  from  keen  competition  and 
ever-increasing  expense  of  doing  business.    Now,  it 


56  CREDITS  AND  COLLECTIONS 

is  not  argued  that  this  disagreeable  feature  can  be 
entirely  eradicated,  but  through  a  full  interchange  of 
experiences  the  guilty  merchant  can  be  taught,  by 
making  him  familiar  with  the  character  and  force  of 
the  report,  that  continuation  of  such  practices  will  op- 
erate seriously  against  his  success. 

An  established  system  for  interchange  of  ledger 
experiences  must  be  the  product  of  natural  growth. 
System  by  Considering  the  complex  nature  of  the 
Which  Facts  proposition  and  the  details  involved,  it 
are  Gathered  jg  practically  impossible  that  such  a  sys- 
tem could  be  successfully  planned  and  put  into  op- 
eration on  a  national  scale,  no  matter  Jiow  wise  the 
planning,  or  how  great  the  executive  capacity  of  those 
in  authority.  The  establishment  of  a  system  that 
will  handle,  without  friction,  the  resulting  millions  of 
experiences,  could  not  be  devised  except  as  the  ex- 
periences of  each  day  taught  how  to  handle  the  lim- 
ited volume  of  business  and  brought  with  it  knowledge 
of  the  best  method  to  cope  with  an  ever-increasing 
volume. 

There  exists  at  this  time  an  organization  that  has 
been  building  for  a  period  of  sixteen  years,  starting 
with  the  smallest  possible  nucleus,  in  a  single  mar- 
ket, and  extending  year  by  year,  market  by  market, 
trade  by  trade,  until  its  connections  reach  out  through 
the  entire  country,  and  the  uniformity  in  method  of 
gathering  and  distributing  information  makes  simple 
what  would  otherwise  be  a  most  complex  problem. 

Take  its  established  chain  of  oflBces  and  watch  the 
process  of  gathering  and  distributing  information. 

We  will  suppose  that  a  member  of  this  organisa- 
tion has  received  a  large  first  order  from  a  merchant 
in  some  distant  city,  and  before  extending  the  desired 


H.  A.  WHEELER  57 

credit  wishes  to  learn  how  largely  this  merchant  is 
already  indebted  for  goods  purchased  and  in  what 
manner  he  has  met  his  obligations  with  those  who  are 
now  carrying  the  account.  An  inquiry  is  made  at 
the  interchange  ofl3ce,  asking  for  ledger  facts  of  the 
present  date.  Consultation  of  the  file  at  the  inquir- 
ing oflQce  will  show  not  only  the  confidential  num- 
ber of  every  local  member  interested  in  this  particular 
account,  but  will  show  as  well  the  volume  of  interest 
in  all  the  other  markets  of  the  country  and  the  con- 
fidential numbers  of  the  subscribers  in  those  mar- 
kets who  have  previously  contributed  to  the  general 
report.  Tickets  requesting  the  ledger  experiences  of 
the  local  houses  are  immediately  made  out  and  sent 
by  messenger  for  reply.  Upon  the  same  day  this 
name  is  passed  forward  by  means  of  a  daily  exchange 
sheet  to  every  market  in  which  the  interchange  sys- 
tem is  established,  advising  that  a  revision  is  being 
made  and  that  all  information  obtainable  is  desired. 
Each  market  receiving  this  request  consults  its  files. 
Tickets  are  made  out  and  sent  to  the  members  inter- 
ested and  to  those  in  outlying  cities  also  known  to 
have  sold  this  customer.  In  each  market,  as  request 
tickets  are  made  out,  they  are  headed  with  the  num- 
ber of  the  office  revising  the  report,  the  date  of  the 
sheet  and  other  necessary  characters,  which,  in  them- 
selves, indicate,  upon  the  return  of  the  tickets,  pre- 
cisely where  they  are  to  be  sent  for  compilation. 

In  this  way  thousands  of  tickets  will  pass  through 
every  ofSce,  every  day,  out  to  the  members  and  back 
again,  the  distribution  becoming  a  simple  mechanical 
operation  based  upon  the  series  of  figures  written  at 
the  top  of  each  ticket.  At  the  close  of  each  day's 
business,  all  information  gathered  from  the  members 


58  CREDITS  AND  COLLECTIONS 

of  every  office  is  distributed  and  forwarded  to  the 
proper  centers,  and  this  continues  from  day  to  day, 
until  all  the  information  from  the  ledgers  of  interested 
houses  has  been  gathered  and  forwarded  to  the  in- 
quiring office,  to  become  a  part  of  the  report  now  be- 
ing compiled.  According  to  the  distance  of  the  con- 
tributing office  from  the  inquiring  center,  the  delay 
in  all  information  reaching  the  point  of  inquiry  may 
be  eight,  ten,  or  even  fourteen  days  where  the  widest 
clearance  is  necessary. 

The  receiving  office  does  not  wait  until  all  the 
information  is  in  hand  before  distributing  it  to  mem- 
How  Inf or-  ^^^^ '  ^^^  ^^^^  write  from  time  to  time  the 
mation  is  information  received.  Each  subsequent 
Distributed  writing  contains  all  that  has  gone  before, 
the  late  information  being  indicated  by  a  special  char- 
acter, so  that  the  credit  office  need  not  consider  that 
which  they  have  already  had. 

At  last  a  final  compilation  is  made  and  the  fol- 
lowing system  of  distribution  takes  place:  The  local 
inquirer  is  served  with  his  copy  of  the  report  as  being 
the  party  most  directly  interested;  the  same  day  the 
mails  carry  forward  copies  of  this  report  for  the  files 
of  all  interested  interchange  offices,  and  a  copy  for 
every  member  whose  information  is  embodied  in  the 
compilation.  These  reports,  immediately  upon  their 
receipt  by  the  various  branch  offices,  are  distributed 
into  the  proper  boxes  for  the  members  interested, 
and  immediately  sent  by  messengers  to  the  credit 
offices  of  the  contributing  members,  thereby  placing 
in  every  credit  file  the  full  compilation  as  nearly  as 
possible  at  the  same  time  and  under  precisely  the 
same  conditions. 

In  addition  to  the  labor  of  gathering  trade  irt' 


H.  A.  WHEELER  59 

formation,  the  party  upon  whom  the  report  is  written 
is  invariably  invited  to  file  his  signed  property  state- 
ment, which  in  every  case,  when  received,  is  made  a 
part  of  the  report,  without  deduction  or  without  com- 
ment. The  best  verification  of  the  truth  of  a  financial 
statement  may  be  found  in  an  examination  of  the 
merchant's  estimate  of  his  own  liabilities  as  against 
the  liabilities  shown  by  the  compiled  report  from  the 
ledgers  of  the  interested  creditors  who  have  con- 
tributed. 

Few  clearances,  of  course,  are  absolutely  com- 
plete, for  it  is  not  to  be  supposed  that  every  jobber 
or  manufacturer  throughout  the  country  is,  or  ever 
will  become,  a  part  of  the  interchange  system;  but  in 
the  making  of  a  signed  statement  the  merchant  gives 
a  detailed  list  of  his  creditors  and  the  amounts  owing 
to  each;  these  checked  back  against  the  items  con- 
tributed from  the  ledgers  not  only  show  whether  the 
merchant  has  underestimated  his  liabilities,  but  also 
give  a  check  upon  the  correct  report  of  the  member. 

The  importance  of  this  subject  and  its  far-reach- 
ing future  possibilities  emphasize  the  importance  of 

considering     all     the     sources    through 
Sources  of  ° 

Interchange  which  this  service  can  be  rendered  and 
Information  discovering,  if  possible,  which  is  calcu- 
lated to  produce  the  best  results. 

The  future  of  the  interchange  business,  and  it  is 
a  great  future,  lies  in  the  keeping  of  one  of  four 
sources:  First,  interchange  by  direct  correspond- 
ence; second,  interchange  through  the  use  of  the  old 
line  agencies;  third,  organization  of  credit  bureaus  by 
trades;  fourth,  interchange  through  some  independent 
corporation,   operated   under  the  supervision  of  ad- 


60  CREDITS  AND  COLLECTIONS 

visory  boards  from  various  trades,  thus  insuring  ac- 
ceptable service  and  reasonable  charges. 

In  consideration  of  these  sources  it  must  be  re- 
membered that  successful  interchange  demands  three 
things:  First,  complete  reciprocity  whereby  the  in- 
quirer must  evidence  his  right  to  inquire  through  a 
past  credit  transaction  with,  or  new  order  from,  the 
party  inquired  about;  second,  that  the  results  of  a 
clearance  be  submitted  only  to  those  who  have  con- 
tributed to  the  report;  third,  that  every  contributor 
shall  receive  in  exchange  for  his  information  the  full 
report  as  delivered  to  the  inquirer. 

We  have  already  discussed  the  undesirable  fea- 
tures of  attempting  a  general  interchange  through' 
direct  correspondence,  and  if  the  objections  are  well 
founded  it  would  be  useless  to  look  to  direct  corre- 
spondence with  references  as  a  means  for  developing 
the  interchange  system. 

There  is  a  well-founded  opposition  on  the  part  of 
a  great  number  of  credit  men  to  supply  ledger  ex- 
periences to  thfc  old-line  mercantile  agencies.  It  is 
only  a  fair  assumption  that  were  ledger  experiences 
to  be  given  without  reserve  to  the  old  line  agencies 
their  reflection  would  surely  be  found  in  the  rating 
and  report,  salable  to  any  member  who  may  wish  to 
inquire,  irrespective  of  past  or  future  interest  in  the 
account  and  independent  of  whether  the  inquirer  had 
contributed  to  its  make-up. 

It  is  argued  that  the  system  of  interchange  of 
credit  or  ledger  experiences  is  of  necessity  a  special 
line  of  work  and  that  the  information  is  of  a  class 
which  should  be  developed  by  some  institution  ex- 
pressly organized  and  equipped  for  such  purpose;  that 
the  equipment  calculated  to  provide  the  best  general 


H.  A.  WHEELER  61 

or  antecedent  report  is  not  capable  of  combining  with 
effectiveness  both  kinds  of  service. 

It  seems  to  me  that  these  two  fields  of  credit  re- 
porting are  totally  separate  and  distinct  and  for  either 
side  to  attempt  to  cover  the  other  would  end  in 
lessened  value  of  the  special  work  in  which  they  are 
now  engaged. 

Interchange  systems  covering  single  lines  of  trade 
seem  not  especially  complex  of  operation;  first,  be- 
Tr  d  Asso-  ^^^^^  i^^J  are  conducted  by  trades  asso- 
ciation Bu-  ciations  with  other  objects  for  organiza- 
reaus  tion,  each  object    having  its    particular 

value  to  some  part  of  its  membership ;  second,  because 
covering  but  a  single  line  of  trade  its  membership  is 
necessarily  limited  and  is  held  together,  in  part  at 
least,  by  the  influence  of  the  association  movement; 
and,  third,  because  trade  terms  and  seasons  are  prac- 
tically alike  for  all  and  the  demands  for  clearances  at 
proper  times  more  easily  met.  Hence  the  idea  has 
found  many  advocates  and  would  not  be  impractical 
if  it  were  possible  to  establish  the  fact  that  there  is 
no  interdependence  between  the  trades;  that  the  ex- 
pense of  maintaining  separate  bureaus  for  each  trade 
in  every  commercial  center  would  not  impose  a  greater 
burden  than  could  well  be  borne. 

If,  however,  in  all  but  two  or  three  centers  of 
commerce  the  number  of  firms  engaged  in  a  given  line 
of  business  would  be  insufficient  to  maintain  accept- 
able bureaus,  thereby  necessitating  clearances  through 
a  few  distant  points  and  involving  aggravating  de- 
lays and  slow  service;  if,  as  is  undeniably  the  case, 
practically  every  trade  is  dependent  upon  a  series  of 
other  trades  in  securing  even  a  reasonably  complete 
record  of  orders  and  indebtedness  of  a  trader  inquired 


G2  CREDITS  AKD  COLLECTIONS 

about;  if,  as  must  be  admitted,  a  great  element  from 
which  information  must  be  obtained  is  located  not  in 
the  large  cities,  but  in  manufacturing  towns  often 
far  removed  from  such  cities,  then  it  becomes  neces- 
sary to  supplement  the  trade  bureaus  with  a  central 
clearing  house,  greatly  adding  to  an  already  heavy  ex- 
pense, and  presenting  diflSculties  in  uniform  handling 
of  information  which  seem  almost  insurmountable. 

Each  trade  has  its  specific  needs  peculiar  to  it- 
self— diiference  in  terms  of  sale;  difference  in  time  of 
shipment;  difference  in  relationship  between  the  cus- 
tomer and  the  seller.  If  separate  bureaus  are  main- 
tained, they  will  naturally  be  operated  along  lines  of 
greatest  value  to  their  own  class  of  business.  If  a  dozen 
trade  bureaus  have  been  organized,  each  with  their 
own  peculiar  need  and  under  the  management  of  an 
efficient  board  of  directors,  is  it  likely  that  these  asso- 
ciations and  these  boards  will  cheerfully  sink  their 
individual  ideas  with  regard  to  the  manner  in  which 
an  interchange  system  should  be  conducted  into  the 
will  of  a  central  board  control,  which  would  dictate 
the  policy  and  procedures  of  all  the  associations? 
That  which  is  applicable  to  one  trade  is  wholly  for- 
eign to  another,  and  it  is  not  likely  that  the  board  of 
directors  of  the  clothing  association  would  willingly 
abandon  plans  that  have  been  found  successful  for 
their  trade,  simply  because  the  needs  of  some  other 
association  demanded  a  different  kind  of  treatment 
and  a  different  co-operation  in  order  to  produce  suc- 
cessful results. 

In  different  trades  orders  are  passed  upon  at  dif- 
ferent times  of  the  year.  Uniformity  in  dates  of 
clearance  is  vital  to  the  success  of  an  interchange 
movement.    A  manufacturer  of  boots  and  shoes  de- 


H.  A.  WHEELER  63 

sires  his  credit  information  before  he  cuts  his  leather, 
and  must,  therefore,  have  clearances  made  for  him 
or  satisfactory  information  presented  in  the  months 
of  April  and  October,  respectively,  for  his  fall  and 
spring  shipments;  while  the  clothing  manufacturer 
desires  his  information  as  nearly  as  possible  about  the 
time  of  shipment.  If  the  Boot  and  Shoe  Associa- 
tion cleared  a  name  in  the  month  of  April,  the  infor- 
mation acquired  at  that  time  is  valueless  in  the  month 
of  July,  the  date  when  the  clothing  manufacturer  will 
desire  his  information.  Is  it  very  likely  that  the  Boot 
and  Shoe  Association  will  censent  to  specially  revis- 
ing a  report  to  satisfy  the  needs  of  the  Clothing  Asso- 
ciation, when  their  own  needs  have  already  been  sat- 
isfied? If  not,  your  report  would  contain  information 
of  various  dates,  would  not  show  full  present  indebted- 
ness, and  would  be  almost  valueless  as  a  basis  for 
credit-making. 

Closely  studying  the  means  by  which  interchange 
of  ledger  facts  is  to  be  made  of  greatest  general  value 
leads  to  but  one  conclusion:  Largest  efficiency  at 
lowest  cost  is  to  be  gained  through  an  independent 
corporation,  abundantly  capitalized,  but  whose  very 
existence  and  success  depend  upon  anticipating  the 
needs  of  its  clients  and  furnishing  every  possible 
means  for  perfecting  its  service.  It  must  become  in 
the  very  nature  of  things  a  public  institution,  com- 
manding the  confidence  and  receiving  the  support  of 
all  communities  and  all  lines  of  trade  which  desire 
to  participate  in  the  interchange  movement.  It  will 
essentially  belong  to  its  supporters,  but  must  not  be 
dominated  or  controlled  by  any  single  faction.  Its 
executive  board  should  be  composed  entirely  of  men 
actively  engaged  in  carrying  on  its  work,  but  there 


64  CREDITS  AND  COLLECTIONS 

should  be  named  by  interested  trades  or  communities, 
or  both,  advisory  boards  keeping  in  close  touch  with 
the  executive  control  of  the  corporation,  thus  utiliz- 
ing the  influence  of  the  organization  and  enhancing 
its  value  in  every  possible  manner. 

Results  which  would  follow  such  a  combination  of 
interests  would  be  inestimable.  Lines  of  trade  that 
have  never  heretofore  enjoyed  an  interchange  would 
seek  such  a  relationship.  Lines  now  possessing  such 
service  in  a  measure  would  seek  to  extend  their  facil- 
ities to  a  broader  field.  Credit  men  who  have  re- 
garded the  contents  of  their  ledgers  as  too  precious  to 
share  with  others  would  be  constrained  to  recognize 
that  the  greatest  safety  lies  in  the  broadest  publicity 
regarding  the  transactions  of  all  creditors  with  a 
given  debtor. 


CHAPTER    VI 

CREDIT  INSURANCE— ITS  OBJECT  AND  WORTH 

By   T.   J.   ZIMMERMAN 

Credit  insurance  is  the  application  of  the  princi- 
ples of  indemnification  for  losses  to  the  risk  incurred 
in  the  extension  of  credit  for  merchandise  sold.  In 
the  theory  of  its  present  practitioners,  it  is  a  guaran- 
tee to  reimburse  a  business  man  for  losses  sustained 
from  bad  debts  over  and  above  a  certain  specified 
normal  amount  and  within  agreed  limitations. 

In  the  treatment  of  this  subject,  consideration 
will  first  be  given  to  the  premises  on  which  the  idea  of 
credit  insurance  is  based  A  description  of  the  plan 
and  method  by  which  it  is  actually  carried  out  in  prac- 
tice, and  a  discussion  of  its  merit  and  value,  its  de- 
ficiencies and  weaknesses,  as  thus  practiced,  will 
follow. 

The  soundness  and  legitimacy  of  the  general  prin- 
ciple of  insurance  have  been  established.  The  founda- 
tion underlying  all  insurance  is  the  same.  It  is  an 
arrangement  by  which  unexpected  and  uncomputable 
burdens  and  losses  are  equitably  distributed  among 
a  large  number.  An  associated  group  of  men  affords 
to  each  of  its  members  protection  against  unlooked-for 
casualties;  each  must  pay  for  having  his  risk  assumed 
by  the  others;  the  official  organization  or  company  is 
simply  the  agent  to  collect  the  premiums  and  dis- 
tribute the  losses.  All  insurance  is  based  on  the  law 
of  averages,    Nothing  is  so  uncertain  as  the  future  loss 

6S 


66  CREDITS  AND  COLLECTIONS 

on  a  specific  risk,  nothing  so  certain  as  the  average 
future  loss  on  all  risks.  Insurance  is  based  only  on 
unexpected  losses,  such  as  cannot  be  computed  in 
advance.  Thus,  insurance  on  property,  called  broadly 
fire  insurance,  insures  against  fire  and  against  loss  by 
cyclones,  floods  and  other  catastrophes ;  but  it  does  not 
insure  against  regular  wear  and  tear,  depreciation  or 
a  decrease  in  the  value  of  goods.  Insurance  applies 
only  to  risks,  not  to  specific  circumstances.  All  pos- 
sible precautions  are  of  course  taken  against  such  un- 
expected loss;  buildings  are  built  as  nearly  fireproof  as 
possible,  and  provided  with  all  kinds  of  appliances 
for  extinguishing  fires;  regulations  are  enforced  re- 
garding the  storing  of  inflammable  material  and  the 
operations  of  dangerous  enterprises;  efiicient  fire  de- 
partments are  kept  up;  care  is  even  taken  to  guard 
against  incendiarism.  Yet  risk  remains,  and  while 
these  precautions  lower  the  risk,  and  hence  the  cost 
of  protecting  the  risk,  it  must  be  insured  against. 

Credit  insurance  has  all  the  earmarks  of  fire  or 
life  insurance.  Business  operations  to-day  rest  on 
The  Principle  ^''^^i*-  ^^1  credit  operations  involve  a 
of  Credit        chance  of  loss,  for  any  exchange  of  money 

XlXSllPfi.ll.C8 

or  goods,  in  which  both  parties  do  not 
deliver  their  commodities  at  the  same  moment,  entails 
some  risk  to  the  party  who  delivers  first. 

Now,  the  business  man  of  to-day,  working  against 
the  most  pressing  competition  and  on  a  small  margin 
of  profit,  must  know  his  exact  costs  and  expenses. 
His  cost  estimates  must  be  so  carefully  computed  that 
he  can  be  absolutely  certain,  if  he  sells  at  a  certain 
figure,  he  will  make  a  certain  profit.  Other  things 
being  equal,  his  success  will  then  depend  on  two 
factors:  the  accuracy  of  his  cost  calculation  and  his 


T.  J.  ZIMMERMAN  6T 

protection  against  unexpected  losses.  His  losses  can 
be  of  two  kinds:  losses  incurred  while  his  goods  are 
still  in  his  possession,  that  is,  by  fire — this  every  busi- 
ness man  will  guard  against  by  carrying  fire  insur- 
ance; and  losses  incurred  after  the  goods  have  left  his 
custody,  that  is,  through  bad  debts  made  by  extend- 
ing credit.  What  more  logical  than  that  this  risk,  too, 
should  be  protected  by  insurance? 

In  both  property  and  credit  loss  there  is  a  certain 
normal  which  the  business  man  charges  into  his  cost 
account.  Thus,  necessary  and  unavoidable  deprecia- 
tion in  buildings  and  stock  is  taken  into  considera- 
tion in  estimating  total  expenses,  and  in  this  item  is 
included  fire  insurance  premiums.  This  item  will  vary 
with  the  kind  of  business  and  its  management,  but 
the  merchant  knows  from  his  previous  year's  record 
exactly  what  these  items  will  amount  to.  In  the  same 
way  there  is  a  certain  normal  for  bad  debts,  varying 
little  from  year  to  year,  depending  on  the  kind  of 
business,  the  class  of  customers  dealt  with,  and  the 
perfection  of  the  organization  in  charge  of  the  credits. 
This  normal  loss,  averaged  from  previous  years'  fig- 
ures, as  unvarying  as  depreciation,  is  properly  part 
of  the  expense  of  doing  business,  and  must  be  figured 
in  with  total  production  costs.  A  certain  prefigured 
normal  loss  is  really  not  a  loss  at  all;  it  is  not  felt 
in  the  business;  it  is  expected  and  provided  for  like  a 
weekly  payroll. 

But,  in  addition  to  this,  business  done  on  credit 
is  always  open  to  unlooked-for  excess  losses  beyond 
the  natural  expectancy  in  the  ordinary  course  of  trade, 
just  as  it  is  liable  to  unexpected  property  losses.  The 
natural  sequence  is  that  this  excess  loss  should  be 
insured  against  just  as  is  excess  loss  on  a  firm's  prop- 


68  CREDITS  AKD  COLLECTIONS 

erty.  Fire  insurance,  then,  protects  goods  when  they 
are  in  the  possession  and  title  of  the  seller;  credit 
insurance  protects  them  when  title  and  possession 
have  passed  to  another,  without  an  equivalent  having 
been  received.  The  basis  of  both  kinds  of  insurance  is 
the  same,  the  law  of  averages  as  applied  either  to  fire 
or  to  bad  debt  losses,  and  the  data  for  both  bases  are 
gathered  in  the  same  way  and  from  equally  reliable 
sources — they  are  the  general  experience  and  exact 
average  figures  of  the  past  combined  with  specific 
facts  relating  to  the  individual  risk  under  considera- 
tion. 

The  banker  who,  with  $1,000  to  loan,  and  the 
choice  between  a  7  per  cent  interest  with  poor  security 
and  a  5  per  cent  interest  with  gilt-edge  security,  takes 
the  latter,  probably  does  not  realize  that  he  is  paying 
30  per  cent  of  his  possible  profit  for  collateral,  and  he 
feels  and  knows  that  he  is  getting  value  received. 
Or,  putting  it  in  another  way,  he  is  paying  $20  a  year 
for  insurance  on  this  loan. 

The  credit  insurance  company  stands  in  the  same 
relation  to  the  merchant  as  the  indorser  does  to  the 
banker.  Credit  insurance  affords  collateral  on  every 
bill  of  goods  sold  by  a  merchant  on  credit.  In  send- 
ing out  a  consignment  of  goods  on  credit,  a  house  is 
really  loaning  money  to  the  amount  of  the  value  of  the 
goods;  the  insurance  company  puts  up  the  collateral 
on  this  loan.  Just  as  an  indorser  investigates  the 
condition  of  a  man  on  whose  bond  he  goes,  so  the 
credit  insurance  company  investigates  the  firms  on 
whose  credits  it  affords  insurance,  except  that  it  does 
this  by  a  different  method. 

The  plan  of  credit  insurance,  therefore,  is  based 
on  the  principle  that  there  is  always  some  loss  from 


T.  J.  ZIMMERMAN  69 

bad  debts  in  every  business;  that,  while  in  no  specific 
case  can  the  excess  loss  over  this  normal  be  cal- 
culated, it  can  be  averaged  for  the  aggregate  of  a 
large  number  of  houses,  and  that,  consequently,  this 
excess  loss  can  be  insured  against. 

This  is  the  idea,  the  principle,  of  credit  insurance. 
How  is  it  carried  into  practice?  What  is  the  actual 
method  of  operation  of  credit  insurance  companies  of 
to-day? 

When  application  is  made  for  credit  insurance, 
an  underwriter  at  once  takes  up  the  investigation  of 
p         .  the  risk,  just  as  in  fire  insurance  an  un- 

Methods  of  derwriter  investigates  the  condition  of 
Operation  ^j^^  property  to  be  insured.  Three  de- 
cisions are  to  be  reached:  What  sum  is  to  be  fixed  as 
the  normal  loss  of  this  house,  above  which  losses  will 
be  indemnified;  what  is  to  be  the  per  cent  and  fixed 
limit  of  indemnification,  and  what  is  to  be  the  pre- 
mium per  year. 

The  mercantile  agencies  have  through  their  long 
investigations  gathered  together  a  mass  of  reliable  and 
valuable  data,  relating  on  the  one  hand  to  general 
facts,  on  the  other  to  specific  business  concerns.  Such 
careful  statistics  of  failures  have  been  compiled  that 
the  commercial  mortality,  classified  according  to  dif- 
ferent businesses,  different  localities  and  different 
commercial  conditions,  is  as  thoroughly  understood 
and  tabulated  as  human  mortality  or  average  fire 
loss.  These  statstics  the  insurance  underwriters  have 
at  hand.  In  addition,  the  mercantile  agencies  can 
give  them  specific  information  regarding  the  house  in 
question — the  general  condition  of  the  house,  the  char- 
acter of  its  trade,  the  class  and  location  of  its  custom- 
ers, all  bearing  on  its  credit  conditions. 


70  CREDITS  AND  COLLECTIONS 

Finally,  the  house  itself  is  investigated  from  the 
inside.  It  must  show  a  schedule  of  its  losses  during 
past  years.  The  books  are  examined  to  determine  the 
class  of  customers,  the  volume  of  business,  the  size 
of  accounts,  the  terms  on  which  goods  are  sold,  the 
general  credit  policy  and  the  run  of  collections.  The 
real  determination  of  insurance  terms  depends  on 
these  elements  of  live  hazard  entering  into  the  policy. 
From  all  these  facts,  the  normal  loss,  the  amount  of 
the  bond  and  the  premium  rate  are  determined. 

For  clearness  let  us  cite  an  imaginary  case:  The 
gross  sales  of  a  house  amount  to  $400,000;  the  normal 
loss  is  placed  at  one-half  of  1  per  cent,  |2,000;  the 
bond  taken  out  is  |10,000,  on  which  the  premium  is 
4  per  cent,  |400.  In  this  case,  if  the  aggregate  loss  of 
the  house  from  bad  debts  is  under  |2,000,  the  firm 
recovers  nothing;  any  excess  loss  over  |2,000  up  to  |10- 
000  is  recoverable  in  full,  within  certain  restrictions. 
These  restrictions  are  regulated  by  the  credit  stand- 
ing and  capital  of  customers  to  which  a  firm  extends 
credit.  "Rated"  customers — that  is,  those  having,  a 
capital  rating  followed  by  a  first  or  second  credit 
rating — are  covered  for  100  per  cent  up  to  an  agreed 
percentage  of  their  capital;  "off-rated,"  those  having 
a  lower  rating  than  the  former,  or  none  at  all,  are 
covered  for  only  a  part  of  loss  sustained  through  them, 
up  to  the  same  capital  percentage. 

Such  is  the  present  operation  of  credit  insurance. 
Is  it  to  be  recommended  for  the  use  of  the  business 
Alleged  Ad-  ^^°  ®^  to-day?  Its  followers  allege  many 
vantages  of  advantages.  Credit  insurance  gives  the 
Insurance  business  man  control  over  his  costs;  se- 
cure through  his  insurance  from  excess  losses,  he  need 
merely  add  his  normal  loss  and  his  premium  to  his 


T.  J.  ZIMMERMAN  71 

other  fixed  expense  items  to  ascertain  the  exact  pro- 
duction costs.  He  can  thus  compute  his  profits  with 
absolute  certainty.  The  last  unknowable  hazard  is 
wiped  out.  He  knows  his  resources  exactly  and  what 
he  can  count  on,  since  his  book  credits,  formerly  a 
doubtful  quantity,  are  now  a  recoverable  asset.  The 
certainty  and  assurance  which  this  condition  of  affairs 
gives  him  allows  him  to  build  more  securely  and  far- 
ther into  the  future,  and  to  meet  competition  fear- 
lessly and  aggressively  He  can  figure  more  closely, 
having  more  certain  knowledge  of  his  costs;  not  hav- 
ing constant  worry  of  bad  debts  over  him,  his  mind  is 
clearer  and  cooler. 

The  inevitable  tendency  of  such  a  policy  will  be 
to  increase  sales  in  so  far  as  they  emanate  from  the 
credit  department.  Not  only  will  the  credit  man  be 
able  to  extend  his  credits  in  some  directions — not  in 
all,  as  will  be  explained — become  more  fearless  and 
embrace  wider  opportunities  because  he  has  someone 
with  whom  to  divide  responsibilities  and  losses,  but  he 
will  worry  less  and  hence  be  more  fit  for  his  work. 
Once  a  decision  is  made,  if  the  credit  extended  com- 
plies with  the  terms  of  his  bond,  the  credit  man  knows 
he  can  sustain  no  loss.  And  if  an  unexpected  and  un- 
avoidable loss  falls  upon  the  house,  he  will  not — as 
often  happens — go  to  the  opposite  extreme  of  ultra- 
conservatism  and  turn  down  many  good  orders. 

The  insurance  policy,  rather  than  making  a  credit 
man  careless,  forces  him  to  keep  closer  watch  of  his 
customers  and  their  accounts,  and  so  tends  to  better 
his  credit-making,  since,  to  avail  himself  of  the  insur- 
ance offered,  he  will  live  up  to  the  requirement  of  his 
bond.  He  must  watch  the  changes  in  the  capital  and 
credit-making  of  his  customers,  for  the  insurance  cov- 


72  CREDITS  AND  COLLECTIONS 

erage  is  based  on  the  latest  information  concerning 
these  fluctuating  items.  He  must  keep  close  watch  of 
the  amount  of  credit  given,  as  shown  by  his  ledgers, 
for  insurance  ceases  above  a  certain  sum.  The  bond 
thus  serves  as  a  guide  in  making  credit.  Its  require- 
ments will  also  make  him  keener  on  collections,  more 
strenuous  in  holding  customers  to  prompt  payment — 
in  itself  a  guard  against  loss — for  he  may  not  be  able 
to  grant  further  credit  and  be  protected  on  it  until 
back  bills  are  paid  up.  The  credit  man's  eagerness  is 
thus  held  inside  the  danger  line,  and  carefulness,  the 
very  opposite  of  recklessness,  is  induced. 

A  further  curb  on  the  credit  man's  eagerness  is 
the  fact  that  he  always  has  the  endeavor  to  keep  his 
losses  inside  the  normal  amount,  for  now  more  than 
ever  will  a  small  percentage  of  loss  redound  to  his 
credit,  for  it  will  be  pure  surplus  for  his  house,  inas- 
much as  the  normal  loss  has  already  been  calculated 
into  the  cost  estimate.  And  he  will  not  lose  sight  of 
the  fact  that  on  his  present  year's  record  will  depend 
the  amount  of  his  future  normal  loss  and  premium 
rate.  He  will,  furthermore,  always  prefer  to  collect 
from  the  debtor  rather  than  the  insurance  company, 
for,  as  in  fire  insurance,  a  loss  means  much  more  than 
the  money  involved;  it  carries  with  it  the  trade  of  a 
customer,  a  stain  on  the  credit  man's  record,  a  black 
mark  against  his  house 

The  value  of  credit  insurance  must  depend  largely 
on  the  man;  its  weak  points  appear  plainly  in  the  very 
It  W  ak  presentation  of  its  advantages.  It  can 
Points  and  be  abused  much  more  easily  than  well 
Dangers  used.    To  a  credit  man  the  least  inclined 

to  shirk  his  responsibility  or  take  too  long  a  chance  it 
wjll  prove  fatal  and  against  the  best  interests  of  his 


T.  J.  ZIMMERMAN  73 

house.  The  very  fact  thAt  he  is  dividing  responsibility 
and  putting  the  possible  loss  on  someone  else  will 
make  him  more  lenient  in  granting  credits.  The  spe- 
cific facts  in  regard  to  a  customer  which  the  credit 
man  must  watch  to  keep  within  the  requirement  of 
his  bond  are  not  extremely  significant;  the  bookkeeper 
or  oflice  clerks  can  keep  track  of  them.  And  a 
credit  man  carrying  insurance  may  even  disregard 
them  altogether,  figuring  that  he  can  take  the  extra 
chance  even  though  his  credit  extensions  are  over- 
stepping the  stipulations  of  his  bond.  None  of  the 
arguments  advanced  as  curbs  on  the  caution  of  the 
credit  man  will  stand  examination.  The  credit  man's 
house  will  not  be  liable  to  hold  a  loss  from  bad  debts 
against  him  if  it  is  covered  by  insurance,  provided  he 
can  show  that  he  has  increased  sales  by  taking  this 
chance.  Credit  insurance  companies  themselves  are 
compelled  to  confess  that  business  men  using  their 
policies  are  apt  to  try  to  make  money  off  them.  That 
a  high  loss  one  year  will  raise  their  future  normal  loss 
and  premium  rate  will  not  be  likely  to  worry  credit 
men.  In  short,  the  weak  credit  man  is  quite  likely  to 
be  further  weakened  by  carrying  credit  insurance  and 
to  substitute  the  security  of  his  bond  for  good  judg- 
ment. 

It  is  often  questioned  if  credit  insurance,  as  now 
conducted,  has  any  value  to  the  strong,  able,  watchful 
credit  man,  and  whether  it  does  not  constitute  a  bur- 
den on  him  for  the  benefit  of  his  weaker  brother. 
Under  the  present  insurance  policy  the  credit  man 
really  does  not  make  his  own  credits,  and  does  not, 
therefore,  make  credits  on  a  proper  basis.  On  the  one 
hand,  if,  hesitating  to  grant  a  doubtful  credit,  he  does 
extend  it  because  the  case  is  covered  by  his  bond, 


74  CREDITS  AND  COLLECTIONS 

surely  in  this  case  it  is  not  his  judgment,  but  the  pro- 
tection of  the  bond,  that  makes  the  credit.  On  the 
other  hand,  refusing  against  his  own  better  personal 
judgment  to  grant  credit  because  such  extension  will 
for  some  reason  not  come  under  his  policy  require- 
ments, here  again  it  is  not  he  who  is  making  the 
credit. 

If  the  normal  loss  of  a  large  firm  for  a  long  period 
of  years  has  averaged  a  certain  percentage  of  its  gross 
sales,  it  may  well  wonder  why  it  should  pay  out  a 
considerable  sum  of  money  to  be  protected  against 
a  loss  above  this  normal,  for  it  is  extremely  probable 
that,  even  though  in  some  one  year  its  losses  will  ex- 
ceed this  percentage,  the  average  of  the  next  decade 
will  be  no  higher,  and  its  premium  will  only  be  so 
much  additional  to  be  charged  to  the  loss  account. 

But  these  arguments  are  all  against  the  present 
methods  of  operation  in  credit  insurance,  rather  than 
against  the  principle  itself.  It  is  the  methods  of  credit 
insurance  companies  of  to-day  that  have  come  under 
criticism;  faulty  methods  due  in  part,  perhaps,  to 
the  fact  that  the  movement  is  still  young  and  that  un- 
derlying principles  and  operative  methods  are  still 
in  an  unsettled  state,  but  also  to  what  many  consider 
the  inherently  wrong  basis  on  which  they  are  con- 
ducted. 

The  great  trouble  with  the  present  methods, 
and  the  reason  that  they  have  received  so  little 
What  Credit  commendation  from  thinking  men,  is 
Insurance  their  generality,  a  characteristic  which 
Might  Do  destroys  almost  entirely  their  analogy 
to  fire  insurance.  In  the  latter,  the  companies  do 
not  divide  risks  into  a  certain  number  of  classes 
and  place  each  piece  of  property  insured  in  one  or 


T.  J.  ZIMMERMAN  75 

the  other  of  these  classes,  but  each  risk  taken 
is  carefully  investigated  in  itself  and  special  regula- 
tions and  figures  applied  to  it.  The  fire  insurance 
company  knows  exactly  what  it  undertakes  in  every 
case.  The  frequently  cited  analogy  of  credit  insur- 
ance to  bank  collateral  and  security  can  hardly  stand; 
any  indorser  will  carefully  investigate  each  piece  of 
paper  he  indorses,  the  character  of  every  man  for 
whom  he  goes  security. 

If  the  credit  insurance  companies  did  the  same, 
that  is,  if,  when  a  credit  man  was  considering  the  ex- 
tension of  credit  to  a  certain  applicant  and  wished  to 
be  secured  on  the  risk,  the  credit  insurance  company 
should  come  and  investigate  the  risk,  determine 
whether  or  not  it  wished  to  take  it,  and  name  a  pre- 
mium rate  specific  to  this  one  risk,  then  the  insur- 
ance w^ould  not  interfere  with  the  credit  making  of  the 
credit  man  or  even  with  his  judgment,  nor  would  the 
insurance  company  be  working  in  the  dark,  as  it  vir- 
tually appears  to  be  now.  It  seems  absurd  that 
the  insurance  company  should  take  the  ratings  in  the 
rating  books  as  its  foundation  for  operation,  ratings 
which  not  even  the  publishers  of  these  books  them- 
selves will  guarantee,  and  which  every  credit  man  veri- 
fies before  he  accepts. 

Much  is  claimed  for  credit  insurance  as  a  stimu- 
lator of  confidence  in  trade  and  a  preventive  of  panics. 
Since  the  wide  expansion  of  credit  operations,  business 
prosperity  has  doubtless  been  based  on  confidence  in 
the  financial  soundness  of  the  debtor  classes,  confidence 
in  the  return  of  money  for  goods  sold.  Confidence  is 
as  real  and  important,  although  more  intangible,  a 
factor  in  business  operations  as  the  banking  system 
itself.     Anything,  such  as  the  guaranteeing  of  an  ac- 


76  CREDITS  AND  COLLECTIONS 

count,  which  will  give  to  confidence  a  tangible  basis, 
and  will  do  away  with  that  fecund  cause  of  panics 
defined  by  the  term,  "the  bottom  dropping  out,"  by 
preserving  confidence  and  hence  credit  between  seller 
and  buyer,  and  will  thus  keep  trade  stimulated,  is  to 
be  commended  and  encouraged.  Not  only  this,  but 
should  a  depression  come,  it  is  claimed  its  worst  ef- 
fect, losses  through  outstanding  accounts,  would  be 
nullified  by  the  indemnification  of  credit  insurance. 
Were  it  wholly  true,  as  an  admirer  recently 
eulogized  it,  "that  credit  insurance  weaves  a  mesh  of 
tough  fiber,  confidence,  which  permeates  the  entire 
crystallized  structure  of  our  commercial  body,  giving 
greater  strength  and  cohesion  to  withstand  a  strain," 
then  it  might  unqualifiedly  be  called  a  public  institu- 
tion working  for  the  public  good.  But  a  panic  is  what 
the  name  signifies.  It  would  be  just  as  easy  for  the 
business  world  and  the  individual  creditor  to  lose 
confidence  in  the  resources  of  the  insurance  company 
itself,  as  it  now  is  to  lose  confidence  in  the  debtor, 
and  the  resultant  crash  would  be  infinitely  worse. 
For,  since  credit  operations  would  become  even  more 
extended  under  a  credit  insurance  regime,  the  liqui- 
dation following  a  possible  loss  of  confidence  would  be 
correspondingly  greater.  Considering  that  losses 
from  bad  debts  in  the  last  decade  have  approximated 
two  billion  dollars,  to  realize  such  an  ideal  as  that 
painted  in  the  statement  quoted  would  require  an  in- 
stitution of  almost  incredible  capital,  power  and 
prestige. 


CHAPTER    VII 

CORRESPONDENCE    IN    THE    CREDIT 
DEPARTMENT 

By  NAHUM  M.  TRIBOU 
Of  Longley,  Low  &  Alexander 
President,  Chicago  Credit  Men's  Association 

Letter-writing  as  applied  to  mercantile,  as  well 
as  educational  and  social  pursuits,  may  be  an  art. 
The  limit  of  possibility  in  this  direction  has  never  been 
reached,  nor  will  it  be  so  long  as  we  approach  the 
individual  through  this  medium  in  the  endeavor  to 
change  his  opinions  or  thoroughly  imbue  his  mind 
with  favorable'  impressions  already  made.  My  obser- 
vation has  always  been  that  too  little  attention  is 
given  to  this,  the  most  important  branch  (after  the 
capital  has  been  supplied)  in  almost  every  business 
organization 

A  prospective  customer  should  know  of  us  first 
through  this  medium,  and,  when  he  becomes  a  cus- 
tomer, never  be  allowed  to  forget  that  he  has  personal 
consideration  in  this  manner  as  often  as  mutual  in- 
terests can  be  served.  Many  houses  never  write  their 
customers  (with  a  few  exceptions)  unless  it  be  a  reply 
to  a  mail  order  that  they  are  unable  to  fill  in  part  or 
in  whole.  The  main  order  is  taken  by  a  road 
salesman,  and,  when  sent  in,  is  acknowledged  by  a 
postal  card.  The  next  reminder  that  they  are  cus- 
tomers is  a  receipt  of  an  invoice  for  the  goods,  and 
if  they  pay  their  bill  before  the  credit  man  gets  a 

77 


78  CREDITS  AND  COLLECTIONS 

chance  to  say  "Please  remit,"  the  whole  transaction 
is  completed  without  a  single  letter,  much  less  having 
engendered  a  friendly  feeling. 

My  idea  is  that  a  customer  should  receive  a  letter 
as  often  as  circumstances  and  good  taste  will  permit. 
The  Writer's  ^^®  mental  attitude  of  the  writer  should 
Attitude  and  be  that  of  a  promoter  of  a  mutual 
Duties  interest,    an    enhancer   of    a   value   yet 

undetermined.  He  should  be  a  man  of  rare  dis- 
cretion; should  familiarize  himself  with  the  traits  and 
character  of  the  customer  and  feel  that  he  is  before 
him,  framing  a  reply  to  be  given  as  soon  as  the  letter 
is  finished. 

The  customer's  mental  caliber,  so  far  as  it  is  ascer- 
tainable, should  be  well  taken  into  consideration,  and 
the  letter  should  avoid  the  appearance  of  form,  or  the 
attempt  to  impress  the  recipient  with  loftiness  in  a 
literary  production.  We  should  put  ourselves  in  the 
customer's  place  and  keep  in  our  minds  his  relation 
to  us,  as  well  as  our  relation  to  him.  More  harm  may 
be  done  by  an  ill-constructed  letter  than  can  be  rem- 
edied by  a  tactful  salesman  in  a  year.  The  good 
physical  condition  of  the  correspondent  is  of  most 
importance,  for  without  it  a  favorable  mental  con- 
dition is  impossible.  A  well-known  author  was  once 
asked  what  preparation  he  made  in  beginning  to  write 
a  book.  He  replied,  "A  good  horse  and  saddle  to 
regulate  my  liver." 

A  high  state  of  mentality  at  all  times  is  out  of 
the  question,  because  the  best  balanced  minds  fluctu- 
ate and  powers  of  impression  vary  from  day  to  day, 
even  from  hour  to  hour,  but  strict  observance  of  the 
laws  of  nature  is  conducive  to  a  state  of  mind  from 
which  emanate  thoughts  of  the  clearer,  higher  order, 


NAHUM    M.  TKIBOU  79 

which,  transmitted  through  the  medium  of  a  letter,  are 
bound  to  reflect  credit  and  inspire  the  recipient  of 
a  letter  with  confidence  in  and  respect  for  the  opinions. 
Flattery  is  permissible  only  in  the  hands  of  the  most 
astute  and  should  be  used  only  in  very  rare  cases, 
and  then  only  that  flattery  which  appeals  to  the  in- 
tellect or  higher  self,  instead  of  that  which  appeals 
to  the  vanity  and  other  weaknesses. 

We  should  take  sufiBcient  time  to  carefully  read 
the  letters  which  we  receive,  that  we  may  fully  com- 
prehend their  meaning.  Unless  a  letter  of  contract, 
the  effect  that  it  is  intended  to  have  on  us  is  what 
we  should  receive.  Business  is  transacted  in  too 
much  haste,  particularly  so  in  the  city.  Our  gauge  in- 
dicates too  high  pressure,  which  is  a  heavy  tax  on  the 
machinery.  It  may  show  great  volume  at  the  end 
of  the  fiscal  year,  but  perhaps  not  the  desired  margin, 
which  is  the  result.  A  reply  to  an  inquiry  once  read, 
"Note  good  for  any  amount;"  it  should  have  read, 
"Not  good  for  any  amount,"  but  the  error  was  dis- 
covered too  late. 

It  requires  the  time  of  one  individual  in  some 
houses  to  investigate  errors  and  write  long  explana- 
tory letters  of  apology.  Independent  of  the  expense, 
who  can  estimate  the  saving  if  this  were  not  neces- 
sary? As  soon  as  a  house  gains  the  reputation  with 
a  customer  of  making  errors  frequently,  that  cus- 
tomer is  in  good  condition  to  listen  attentively  to  a 
competitor.  I  do  not  pose  as  a  pessimist ;  we  all  know 
that  there  are  houses  which  conduct  their  affairs  in 
an  enviable  manner,  increase  their  volume  of  business 
each  successive  year,  with  their  losses  through  errors 
infinitesimal,  but  therein  is  the  practical  proof  of  my 


80  CREDITS  AND  COLLECTIONS 

argument.    What  man  has  done,  man  can  do  again 
and  better. 

The  treatment  of  salesmen  while  on  the  road  is  a 
subject  for  deepest  consideration,  and  those  who  have 
experienced  the  vicissitudes  of  their  occupation  can 
best  appreciate  the  truth  of  this  assertion.  The  result 
of  their  efforts  depends  largely  upon  the  state  of  their 
mind,  which  may  be  greatly  affected  by  the  character 
and  tone  of  the  letters  which  they  receive  from  the 
house.  They  may  have  a  great  many  things  to  con- 
tend with,  and  if  the  best  results  are  to  be  obtained 
from  the  territory  which  they  are  covering,  they 
should  have  all  the  assistance  possible,  and  at  a  time 
when  it  will  do  the  most  good.  Every  single  inquiry 
made  by  them  in  regard  to  the  business  should  be 
answered  by  return  mail,  even  if  some  of  them  appear 
to  us  entirely  uncalled  for.  Every  correspondent,  in 
fact,  is  entitled  to  an  acknowledgement,  at  least,  the 
day  his  letter  is  received,  even  though  the  answer 
must  be  delayed. 

There  is  no  greater  abuse  in  the  office  of  the  manu- 
facturer or  wholesaler  than  the  form  letter.  It  is  in- 
Personal  tended  to  use  them  applicably,  but  they 
Versus  Form  are  not  so  used  in  such  a  large  percent- 
Letters  ^g^^  ^jjg^^    ^j^g    harm,  when  misapplied, 

in  a  measure  offsets  the  good  effect.  I  refer  now  to 
letters  mailed  in  anticipation  of  the  salesman's  visit, 
or  letters  sent  out  on  receipt  of  an  order,  intending 
to  have  the  effect  of  having  been  framed  exclusively 
for  the  benefit  of  the  individual.  If  they  are  gotten 
up  so  there  are  no  contradictions,  they  are  so  palpably 
"general"  that  those  customers  of  ripe  judgment  and 
mature  experience,  whom  we  are  most  anxious  to  im- 
press favorably,  see  at  once  the  intended  subterfuge. 


NAHUM   M.  TRIBOU  81 

I  would  prefer  a  circular  letter  that  is  undeniably  a 
general  letter,  or  a  personal  letter,  from  which  the 
recipient  knows  that  he  and  he  only  was  in  the  mind 
of  the  writer  when  it  was  framed.  When  you  discover 
that  you  are  reading  a  form  letter,  your  first  inclin- 
ation (unless  you  already  have  reason  to  think  that 
there  is  something  of  interest  in  it  for  you)  is  to 
stop  and  throw  it  into  the  waste  basket;  there  is  a 
symptom  of  the  sensation  you  experience  in  finding 
the  name  of  a  proprietary  medicine  at  the  end  of  a 
long  and  interesting  article  on  hygiene. 

I  am  told  of  a  credit  manager  in  one  of  the 
larger  Western  cities  who  uses  fourteen  successive 
forms  seven  days  apart  in  making  collections  before 
the  account  goes  to  the  attorney.  A  delinquent  who 
needs  the  time  and  is  willing  to  take  it  would  settle 
back  in  peace  of  mind  about  the  time  he  had  received 
the  second  form,  after  he  had  once  been  "through  the 
mill." 

In  dictating  a  great  many  letters  each  day,  it  is 
almost  impossible  to  avoid  repeating  expressions,  but 
one  should  not  indulge  in  pet  phrases.  The  ring  of 
originality  should  be  patent  to  the  writer  if  he  would 
avoid  stereotypedness,  and  thus  the  subtle  flattery 
to  the  recipient — our  attention  this  day  to  you — is  at- 
tained. 

A  theory  is  being  advanced  as  new  along  the 
lines  of  psychology  in  business  correspondence;  it  is 

Psvcholoffvin^^  ^^^  ^^  business  itself.  We  are  all 
Business  Cor- psychologists  intuitively,  just  as  far 
respondence  ^g  ^^^j.  intellects  will  carry  us.  A 
Yankee  horse-trader,  if  he  were  a  good  one,  offered 
to  the  mind  of  his  subject  progressive  suggestions 
from  the  time  he  attempted  to  create  in  his  mind  a 


82  CREDITS  AND  COLLECTIONS 

greedy  desire  to  get  sight  of  his  horse,  until  he  made 
him  think  that  it  was  not  only  the  cheapest  piece  of 
horse  flesh  he  had  ever  beheld  for  the  money,  but 
that  it  would,  under  its  new  environments,  increase 
in  value  one  hundred  per  cent.  Just  so  in  our  busi- 
ness correspondence;  we  appeal  to  the  intellect  if  we 
have  ourselves  intellect,  inspiring  the  prospective  cus- 
tomer with  confidence  in  our  ability  and  desire  to  be 
of  benefit  to  him.  When  that  has  been  accomplished, 
he  wants  to  buy  goods  of  us. 

For  obvious  reasons,  many  of  the  best  houses 
have  in  recent  years  added  a  department  for  special 
correspondence  with  the  trade,  assisting  the  salesman 
by  anticipating  his  visit  to  the  regular  customer,  but 
more  particularly  for  the  purpose  of  working  up  new 
business  through  personal  correspondence  with  mer- 
chants whom  they  have  never  had  on  the  ledger. 
This,  of  course,  requires  a  great  deal  of  preliminary 
work  in  learning  the  names  of  the  merchants  and 
some  good  peculiarities  regarding  their  business  or 
business  methods,  that  they  may  intelligently  frame 
a  letter  which  will  indicate  to  them  a  knowledge  of 
their  affairs;  not  financial,  for  that  is  understood  and 
must  be  determined  upon  before  they  are  put  upon 
the  "list,"  but  others  of  which  they  are  equally  proud. 

This  may  sound  theoretical,  but  any  proposition 
sounds  theoretical  to  the  firm  that  denotes  additional 
expense,  or  to  the  employe,  if  it  means  more  work, 
until  it  has  been  tried  and  proved  otherwise.  The 
older  plans  of  general,  circular  and  catalog  advertising 
are  still  adhered  to  (particularly  the  latter),  and  have 
their  places,  but  the  personal  letter,  after  careful  and 


NAHUM    M.  TRIBOU  83 

judicious  preparation,  is  to-day  an  essential  feature 
of  the  modern  mercantile  house. 

I  desire  to  say  incidentally  that  many  salesmen, 
as  it  applies  to  their  regular  customers,  strenuously 
object  to  this  plan  of  what  they  call  "superfluous 
letters  from  the  house,"  believing  that,  if  the  house 
lends  its  assistance  in  holding  the  customer  and  sell- 
ing him,  their  personal  interests  are  jeopardized.  This, 
however,  is  sophistry,  for  if  they  cannot,  in  personal 
contact  with  the  customer,  hold  their  own,  they  are 
neither  broad  nor  adroit.  One  may  employ  all  the 
subtle  subterfuges  known  to  human  ingenuity  in  writ- 
ing and  make  no  verj'  lasting  impression  as  compared 
with  the  personal  interviewer,  other  influences  being 
equal. 

It  requires  tenacity  of  purpose  to  write  a  prospec- 
tive customer  two  or  three  times  a  season,  year  after 
year,  getting,  perhaps,  nothing  but  a  civil  note  in 
evidence  that  the  time  is  not  come  when  the  "wedge 
may  be  put  in;"  and  not  doing  business  with  him, 
we  cannot  fairly  know  how  he  feels  toward  our  com- 
petitor from  whom  he  is  buying;  therefore,  as  the 
unexpected  always  happens,  we  little  realize  as  we, 
perhaps  for  the  tenth  time,  write  him  a  courteous 
letter,  describing  to  him  some  of  the  new  things  which 
the  salesman  of  that  territory  has  wisely  decided  will 
prove  a  valuable  acquisition  to  his  stock,  that  bur 
opportunity  has  arrived.  It  is  possible  that  he  is 
stronger  financially  than  when  we  first  attempted  to 
sell  him  and  that  his  business  has  grown  to  much 
larger  proportions;  if  so,  by  our  continued  cultivation 
of  the  men  we  have  an  additional  margin  in  the  profit 
of  our  correspondence  any  way  we  figure  it,  and  when 
we  first  sell  him  we  receive  the  dividends  accrued,  as 


84  CREDITS  AND  COLLECTIONS 

our  bills  are  larger  than  they  would  have  been  had  we 
opened  the  account  at  the  date  of  our  first  letter. 

It  is  a  characteristic  of  human  nature  that  we 
must  have  what  we  want  until  we  get  possession, 
when  our  ardor  cools  and  the  tendency  is  toward 
neglect.  This  is  true  of  our  attitude  towards  our  cus- 
tomers, unless  we  take  every  precaution  and  guard 
ourselves  against  getting  into  the  very  wide  rut — 
carelessness.  A  properly  arranged  department  for 
correspondence  is  its  greatest  preventive.  The  name 
comes  up  periodically  for  a  letter  of  such  and  such  a 
character,  and  we  are  thus  stimulated  to  put  new  life 
into  each  particular  case. 

The  manufacturer  or  wholesaler  is  a  silent  partner 
of  the  retailer  to  the  extent  that  the  credit  given  to 
the  latter  is  to  his  total  assets  and  liabilities,  and  as 
we  encourage  or  discourage  him  through  our  corre- 
spondence, so  we  must  reap  the  benefits  or  disappoint- 
ments. Hastily  written  letters  in  making  collections, 
striving  to  "get  out  first,"  have  not  infrequently  pre- 
cipitated failures,  just  as  carefully  constructed  letters, 
after  studious  consideration  of  all  the  circumstances, 
have  avoided  catastrophes. 


CHAPTER    VIII 

CREDITS  AND  COLLECTIONS  IN  A  WHOLESALE 
HOUSE 

By  EDWARD  M.  SKINNER 
Of  Wilson  Brothers 
Ex-President,  Chicago  Credit  Men's  Association 

Credit  is  the  name  given  to  that  business  opera- 
tion by  which  delivery  of  money,  merchandise  or 
other  consideration  is  made  on  the  promise  of  future 
payment.  Credit  is  based  on  confidence;  confidence 
in  a  man's  resources  and  ability  to  pay,  in  his  char- 
acter and  integrity;  confidence  in  the  stability  of  the 
locality  in  which  he  conducts  his  business,  in  the 
country  itself;  confidence  in  the  strength  of  its  gov- 
ernment and  the  soundness  of  its  finances.  Credit- 
making  is  an  estimate  or  opinion  of  the  ability  and 
intention  of  business  men  to  carry  out  their  business 
contracts,  and  of  future  commercial  conditions.  The 
man  who  pays  cash  uses  the  profits  made  from  past 
business  conditions;  the  man  who  buys  on  credit  an- 
ticipates the  profits  of  the  future;  hence  the  man 
who  sells  on  credit  must  foresee  the  business  con- 
ditions which  are  to  bring  these  profits. 

Credit-making  can  no  longer  be  done  on  the  old 
mathematical  basis,  nor  with  the  old  sweat-box 
methods.  The  scope  of  credit  operations  has  so 
widened,  credit-giving  and  credit-taking  have  become 
so  common,  that  no  man  is  so  weak  that  he  must 
stand  brutal  inquisitorial  questionings  into  his  most 

85 


86  CREDITS  AND  COLLECTIONS 

private  affairs,  no  house  so  strong  that  it  can  afford 
to  have  an  openly  cold-blooded  and  harsh  man  in  its 
credit  department,  who  will  antagonize  customers  and 
repulse  trade.  The  object  of  the  credit  man  is  in  the 
main  that  of  the  whole  selling  end  of  a  business: 
to  sell  goods  at  a  profit.  If  he  cannot  sell  a  man  goods 
to-day  because  he  cannot  extend  him  credit,  he  must 
remember  that  this  man  may  be  in  such  condition 
to-morrow  that  credit  can  safely  be  extended  him, 
and  he  must  rule  his  conduct  accordingly. 

The  credit  man  comes  into  more  intimate  contact 
with  the  customers  of  a  house  than  any  other  man. 
Purpose  and  ^'^^  relations  are  most  delicate,  he 
Policy  of  the  touches  a  man  where  he  is  most  sensi- 
Credit  Man  ^j^g — ^^  ^^^  question  of  his  character 
and  his  ability.  He  must  pre-eminently  be  a  man  who 
can  handle  people,  who  can  reach  their  real  selves. 
Anyone  can  get  information  of  a  certain  kind  by 
asking  direct  questions  in  a  direct  way  and  putting 
them  down  in  a  cold,  unfeeling  manner,  with  a  "I- 
know-you're-dishonest-anyway"  attitude — working  the 
customer  up  to  such  a  murderous  frame  of  mind 
that  the  least  he  can  do  is  to  refuse  to  buy  if  he  does 
get  credit.  But  the  man  who  can  talk  to  a  customer 
pleasantly  and  interestedly  about  his  affairs  and  cir- 
cumstances, getting  a  fact  here  and  an  admission 
there,  until  he  has  all  the  information  he  wants,  with- 
out a  direct  question,  will  secure  more  complete  and 
reliable  facts  than  those  obtained  by  a  brutal 
straightforward  examination,  and  will  add  a  friend 
and  perhaps  a  customer  to  the  house.  Even  if  credit 
cannot  be  extended,  the  customer  should  be  so 
handled  that  he  will  leave  the  office  in  a  pleasant 
frame  of  mind.     This  is  all  a  mere  question  of  at- 


EDWAED    M.  SKINNER  87 

titude  and  tact.  It  is  due,  not  to  increasing  com- 
petition between  houses,  but  to  the  development  of 
greater  kindliness,  smoothness  and  tact  in  the  outward 
show,  at  least,  of  business  relations. 

This  more  human  attitude  on  the  part  of  the 
credit  man  is  of  even  greater  importance  when  it  is 
a  question  of  handling  a  customer  who  is  in  the  debt 
of  the  house  and  has  gotten  into  diflSculties.  Many 
an  account  can  be  saved  by  tactful,  though  always 
firm,  treatment;  more  than  this,  many  a  business  man 
or  house  can  be  saved  to  its  debtor  and  to  itself  by 
a  policy  of  advice  and  co-operation — real  and  substan- 
tial— instead  of  a  policy  of  suspicion  and  attack. 
When  a  debtor  house  reaches  this  point,  everything 
depends  on  the  attitude  and  action  of  the  credit  man. 

The  attitude  which  a  credit  man  should  assume 
is  really  a  result  of  the  object  which  he  sets  before 
himself.  His  purpose  is  to  sell  all  the  goods  he  can, 
at  the  least  possible  loss,  with  the  least  possible  ex- 
pense, and  with  the  least  percentage  of  orders  de- 
clined. It  is  easy  for  the  credit  man  to  show  at  the 
end  of  the  year  a  loss  of  only  one-tenth  of  one  per 
cent — if  he  makes  his  credits  that  way.  When  the 
head  of  a  concern  receives  his  credit  man's  report, 
he  should  also  ask  for  a  statement  of  the  number  and 
value  of  orders  declined.  It  is  a  very  easy  task  to 
turn  down  orders;  it  is  simple  to  keep  the  percentage 
of  loss  down  if  no  chances  are  taken.  The  question 
for  consideration  is  not  only  how  little  money  did  the 
credit  man  lose  through  bad  debts,  but  also  how 
much  did  he  lose  in  orders  rejected;  how  many 
prospective  customers  did  he  kill  for  all  future  sales; 
how  many  present  customers  did  he  offend  or  lose; 


88  CREDITS  AND  COLLECTIONS 

how  much  expense  put  into  securing  orders  did  he 
nullify? 

Of  course,  if  a  credit  man's  judgment  tells  him 
that  it  is  unsafe  to  extend  credit,  he  should  refuse  to 
grant  it.  But  it  is  a  far  cry  from  refusing  credit  to 
losing  an  order  or  a  customer.  If  he  does  not  believe 
it  advisable  to  grant  credit,  the  credit  man  should  try 
to  fill  the  order  on  some  other  basis.  He  may  be  able 
to  ship  the  goods  under  some  guarantee  of  payment; 
perhaps  he  can  get  the  buyer  to  pay  cash  in  part  at 
least;  by  working  in  conjunction  with  the  salesman 
through  whom  the  order  has  come,  some  satisfactory 
arrangement  can  often  be  made.  If  the  credit  man 
explains  to  the  customer  fully  and  in  a  tactful  manner 
why  he  must  refuse  credit,  expresses  a  desire  to  keep 
the  account,  and  asks  him  whether  he  cannot  sug- 
gest some  other  basis  on  which  the  goods  can  be 
shipped  him,  he  may  even  receive  the  co-operation 
of  the  customer  in  making  mutually  satisfactory  ar- 
rangements. Thus,  keeping  in  touch  with  this  man, 
the  credit  man,  by  advising  and  helping  in  his 
growth,  may  gradually  bring  his  account  to  a  point 
where  it  can  be  put  on  a  credit  basis. 

Even  though  a  credit  man  does  not  see  his  way 
clear  to  opening  a  credit  account  with  an  applicant, 
the  full  reasons  can  be  put  to  him  in  such  a  light,  his 
own  condition  can  be  so  analyzed  to  him,  the  at- 
titude of  the  house  can  be  so  laid  before  him,  that 
he  will  go  away  knowing  the  credit  man  is  right — 
and  he  will  come  back  again.  Instead  of  saying,  when 
credit  is  refused  him,  "I'll  be  hanged  before  I  ever 
trade  with  that  house,"  he  will  say  to  himself,  "I'll 
show  that  house  that  I  am  worthy  of  credit  from 
them."    To  make  such  an  impression  requires  tact  in 


EDWARD    M.  SKINNER  89 

handling  men,  and  the  greatest  compliment  which 
can  be  paid  a  credit  man  is  to  have  a  man  to  whom 
credit  has  been  denied  come  back  later. 

The  exact  balance  to  be  kept  between  sales  and 
safety  is  in  large  degree  a  matter  of  house  policy. 
Th  Cr  dit  ^^  depends  on  the  kind  of  business  in 
Man  Who  which  the  firm  is  engaged,  the  class  of 
Excels  j^g    customers    and    the    margin    of    its 

profits.  Some  houses  cannot  afford  to  run  a  risk; 
others  figure  it  will  pay  them  to  take  chances,  not 
in  an  irresponsible  manner,  but  with  eyes  open  and 
after  careful  consideration.  It  is  comparatively  easy 
to  judge  whether  a  man  is  really  entitled  to  credit; 
when  to  take  a  chance  is  the  question  whose  decision 
requires   experience   and   careful    consideration. 

Losses  come  in  taking  chances — so  does  volume 
of  sales.  That  credit  man  excels  who,  taking  what 
looks  like  a  long  chance,  by  such  mental  means  and 
systematic  methods  as  he  possesses  shortens  the 
chance  and  brings  it  to  the  point  of  safety. 

That  the  person  who  can  do  this  must  be  born 
with  such  abilities  is  a  convenient  belief  for  the  man 
who  fails  to  attain  such  excellence.  The  fact  is  that 
a  credit  man  is  made  much  more  than  he  is  born — 
he  is  made  by  learning  the  rudiments  of  business 
thoroughly,  by  studying  men,  their  strength  and 
weaknesses,  by  allowing  his  experience  to  teach  him. 
The  good  credit  man  carries  consideration  for  other 
people;  his  manners  are  pleasing.  The  methods  he 
uses  are  quiet  methods.  He  has  a  definite  knowledge 
and  a  thorough  grasp  of  the  business  of  his  house 
and  of  his  work  in  it.  Opinions  he  has — but  he  ex- 
presses them  only  when  necessity  demands,  and  then 
firmly.    In  short,  the  good  credit  man's  qualities  are 


90  CREDITS  AND  COLLECTIONS 

the  same  as  those  of  any  good  business  man.  If  he  is 
a  good  credit  man,  it  is  safe  to  assume  that  he  would 
have  been  just  as  successful  in  some  other  depart- 
ment of  business. 

The  particular  knowledge  and  training  required 
for  his  peculiar  work  he  must  also  have;  but,  given 
these  general  traits,  he  can  acquire  that.  He  must 
have  a  wide  knowledge  of  business  affairs  and  com- 
mercial conditions;  it  can  be  acquired.  Familiarity 
with  the  laws  and  customs  of  many  different  local- 
ities is  a  great  help  to  him;  he  can  learn  them.  He 
must  have  experience,  not  so  much  in  credit-making 
as  in  general  business  activities;  he  can  gain  it. 
As  far  as  that  is  concerned,  if  the  credit  man  makes 
each  credit  as  it  comes  up  on  a  sound  and  safe  basis, 
he  need  not  worry  about  general  or  local  conditions. 
It  is  only  the  poor  credits,  the  careless  and  doubtful 
extensions,  that  suffer  when  a  commercial  squeeze 
comes — and  then  they  are  past  worrying  about.  And 
this  is  a  good  opportunity  for  saying  that  the  time  to 
do  worrying  is  before  the  goods  are  shipped,  when 
the  credit  is  in  the  process  of  making.  Such  worry  is 
legitimate  worrying.  Worrying  afterward,  when 
the  goods  are  beyond  reach  in  the  hands  of  the 
debtor,  is  only  detrimental;  it  hurts  the  work  of  the 
credit  man  and  unfits  him  for  his  responsibilities. 

The  basis  for  credit,  the  information  in  ac- 
cordance with  which  the  credit  man  forms  his  judg- 
Basis  for  ment,  differs  according  to  different 
Credit  factors.      The    location    of    a    business 

Judgment  house,  the  kind  of  goods  it  carries,  the 
general  character  of  its  trade,  the  particular  form  of 
credit  it  ordinarily  extends — all  these  modify  the 
kind  of  information  wanted,  so  that  it  would  be  futile 


EDWARD    M.  SKINNER  91 

to  attempt  to  set  down  even  in  general  the  facta 
used  in  making  credit  judgments.  Credit  men  them- 
selves vary  as  to  the  particular  facts  they  desire 
and  find  useful.  Each  puts  emphasis  on  different 
points  and  facts  as  his  experience  dictates;  one  lays 
stress  on  character,  another  on  ability,  a  third  on 
past  experience;  this  one  considers  especially  the 
amount  of  capital,  that  one  the  volume  of  sales. 

No  better  statement  of  the  essential  information 
needed  to  judge  of  the  advisability  of  extending 
credit  could  be  made  than  this,  quoted  from  Mr. 
Horace  C.  Bennett:  "The  bases  for  commercial  credit 
are  ability,  integrity  (absolutely  essential),  and  prop- 
erty (not  necessarily  essential),  and  the  truth  regard- 
ing these  is  what  the  trade  wants. 

"Ability  is  measured  by  age,  health,  business  ex- 
perience, education,  income  by  personal  effort.  The 
evidence  of  integrity  is  business  and  social  honor, 
personal  deportment,  character  of  associates  and 
reputation.  We  mean  by  property  that  which  can  be 
taken  under  an  execution  and,  whether  personally 
acquired  or  inherited,  qualified  by  income  and  net 
wealth." 

While  tangible  assets  are  the  chief  basis  for  the 
extension  of  credits,  yet  it  can  be  stated  absolutely — 
and  it  is  an  agreeable  evidence  of  the  large  part 
which  the  human  element,  man  himself,  plays  in  the 
more  or  less  sordid  operations  of  business — that  the 
rock  bottom  foundation  upon  which  the  whole  system 
of  credit  is  based  is  character.  Those  characteristics 
of  the  man  himself  most  significant  to  the  credit  man 
are  rightfully  identical  with  the  most  essential  ele- 
ments for  success  in  any  man:  honesty,  good  habits, 
ability,  industry,  economy  and  care  in  the  conduct 


92  CREDITS  AND  COLLECTIONS 

of  business.  Of  these  rightful  assets  none  can  be 
levied  upon  by  law,  but  just  as  a  man  cannot  at- 
tain success  without  them,  so  a  credit  man  cannot 
give  credit  to  a  merchant  lacking  them.  In  fact,  if 
a  credit  man  could  be  absolutely  sure  of  an  appli- 
cant's honesty,  all  other  considerations  might  safely 
be  eliminated.  Not  that  honest  men  never  fail,  for 
they  often  lack  ability  and  other  essentials,  but  as 
between  the  man  with  large  resources  and  doubtful 
honesty,  and  the  honest  but  financially  weak  man, 
the  latter  is  entitled  to  credit,  and  to  the  former 
confidence  should  be  denied. 

A  very  significant  fact,  very  often  if  not  gen- 
erally overlooked  by  a  credit  man  in  judging  of  a 
customer's  title  to  confidence,  is  the  volume  of  his 
sales,  the  amount  of  his  expenses,  and  the  relation 
between  the  two.  It  is  not  the  amount  of  capital 
which  a  man  has  in  his  business,  so  much  as  the 
frequency  with  "which  he  turns  his  capital  over,  that 
affords  an  insight  into  his  real  ability  and  the  actual 
condition  of  his  business,  that  shows  up  the  true 
color  of  his  affairs  and  indicates  the  healthiness  of 
his  trade.  The  amount  of  his  expenses  is  a  true  in- 
dex of  his  business  management.  These  two  figures 
give  the  closest  line  on  a  merchant's  situation.  No 
financial  report  is,  therefore,  complete  without  a  state- 
ment of  sales  and  expenses. 

A  credit  man  should  get  all  information  possible 
regarding  a  customer.  The  first  source  of  informa- 
Source  of  *^^°'  ^^  being  the  easiest  and  quickest 
•Credit  infoT-  of  access,  is  the  rate  books  of  the  large 
mation  commercial     agencies,     where     can     be 

found  the  capital  and  credit  rating  of  every  merchant. 
The  next  most  common  source  of  information  is  spe- 


EDWARD    M.  SKINNER  93 

cial  reports  from  these  agencies,  which  give  detailed 
statements  of  the  character,  resources  and  situation 
of  a  business  man.  These  reports  are  of  value,  for 
they  give  certain  definite  data  and  specific  facts,  and 
sometimes  include  a  sworn  and  signed  statement  from 
the  man  investigated.  But  these  reports  are  rarely 
fresh,  they  are  revised  confessedly  only  twice  a  year, 
and  then  undergo  a  process  of  rehashing  rather  than 
revising.  The  service  of  these  agencies  is  improving, 
but  only  in  the  same  ratio  as  its  clients  demand.  Never 
in  my  experience  has  a  request  for  a  report  from  an 
agency  failed  to  bring  one  forth,  whether  the  agency 
had  anything  new  to  report  or  not.  That  this  is  a 
mistake  in  business  policy  as  well  as  bad  business 
principle  is  evident.  The  client  pays  for  this  in- 
formation and  should  receive  something  of  value  in 
return.  If  an  agency  has  no  new  or  fresh  informa- 
tion concerning  a  merchant  the  second  time  a  client 
asks  for  information  upon  him,  they  ought  openly  to 
acknowledge  it,  instead  of  trying  to  pass  off  some  old 
stuff  in  a  new  form. 

Local  attorneys  and  banks  can  be  put  to  very 
good  use  as  commercial  reporters,  and  are  a  valuable 
instrument  to  the  credit  man  if  used  properly.  But 
the  practice  of  obtaining  information  from  them 
gratuitously  is  a  mistake.  The  laborer  is  worthy  of 
his  hire.  Better  returns  are  bound  to  come  if  the 
labor  is  paid,  for,  even  though  local  attorneys  are 
in  the  habit  of  rendering  such  service  gratis  in  the 
hope  and  expectation  of  receiving  collection  work 
from  the  houses  they  serve,  they  will,  naturally  and 
conscientiously,  put  more  care  and  work  upon  a 
report  for  which  they  are  receiving  direct  payment. 

Attorneys  can  give  the  latest  information  and 


94  CREDITS  AND  COLLECTIONS 

the  most  intimate  facts,  for  they  are  familiar  with 
local  conditions,  they  are  on  the  spot  and  get  their 
information  first  hand,  and  they  are  often  in  personal 
touch  with  the  subject  of  the  inquiry. 

The  value  of  the  information  to  be  obtained  from 
banks  depends  much  on  the  way  they  are  approached, 
A  clever  correspondent,  who  presents  his  case  as  a 
business  proposition  and  is  candid  in  regard  to  what 
he  wants,  at  the  same  time  offering  compensation 
and  not  expecting  the  bank  to  waste  its  time,  can 
secure  very  good  service.  It  is  well  when  banks  are 
used  to  make  inquiry  from  several  in  the  same  town, 
so  as  to  avoid  getting  a  single  report  from  the  cus- 
tomer's own  bank,  the  value  of  whose  information 
and  point  of  view  would  be  doubtful,  to  say  the  least. 
Bankers  are  the  highest  grade  merchants  in  the  coun- 
try; high  grade  reports  can  justly  be  expected  from 
them;  and  usually,  when  they  do  give  information, 
it  can  be  relied  upon. 

The  "credit  clearing  house"  is  one  of  the  best 
instruments  in  the  determination  of  credits  in  those 
lines  of  business  represented  by  it  It  does  not  dupli- 
cate the  agency  and  other  reports,  but  is  supple- 
mentary to  them.  It  reports  only  figures  and  facts, 
and  really  gives  to  a  membership  house  access  to  the 
ledger  account  of  the  customer  under  investigation 
with  every  member  having  the  account.  As  the  system 
is  described  in  detail  in  another  chapter,  it  need  not 
be  enlarged  upon  here. 

Salesmen  afford  a  valuable  source  of  information, 
if  the  credit  man  will  take  the  trouble  to  educate 
them  to  the  observation  and  collection  of  the  kind  of 
information  he  desires.  It  can  hardly  be  expected  that 


EDWARD    M.  SKINNER  95 

the  good  salesman  will  also  be  a  good  credit  man — 
especially  in  the  same  transaction.  It  is  not  human 
nature;  the  two  activities  are  along  different  lines, 
and,  especially  when  applied  to  the  same  transaction, 
pull  in  opposite  directions.  But  salesmen  can  be  made 
valuable  adjuncts  to  the  credit  department  if  the 
credit  man  has  the  tact  to  arouse  a  co-operative  in- 
terest among  them.  To  do  this  he  must  convince 
them  that  he  is  trying  as  hard  as  they  to  ship  goods. 
He  must  show  that  he  is  willing  to  be  educated  along 
their  lines,  that  he  will  do  his  part.  Then  they  will 
reciprocate. 

No  two  departments  of  a  house  should  work  in 
closer  co-operation  or  more  harmonious  relation  than 
these,  for  the  success  of  one  is  essential  to  the  suc- 
cess of  the  other,  and  a  mutual  enjoyment  of  each 
other's  experience  and  knowledge  tends  to  the  suc- 
cess of  both,  and  hence  to  the  profit  of  the  house 
itself.  No  greater  weakness  can  be  pointed  out  in 
a  credit  department  than  a  failure  to  build  up  cordial 
relations  with  salesmen  and  to  secure  and  make  use 
of  the  store  of  first-hand  information  regarding  ac- 
tual facts  and  conditions  which  they  possess. 

Once  credit  has  been  granted  and  a  new  account 

opened,  the  work  of  the  credit-  man  has  only  begun. 

„  —  .  He  must  not  only  watch  each  account, 
To  Keep  in  "^  ' 

Touch  With  keep  track  of  the  amount  due  and  over- 
ccoTin  s  ^^^^  ^^  promptness  in  paying,  the  size 
of  the  orders — all  of  which  he  can  learn  from  con- 
stant study  of  his  ledger  pages — but  he  must  also 
watch  each  customer  and  his  general  condition,  which 
is  subject  to  constant  and  often  rapid  change.    This 


96  CREDITS  AND  COLLECTIONS 

he  must  learn  from  special  reports,  from  salesmen, 
and  from  personal  interviews. 

This  part  of  a  credit  man's  work  is  responsible 
for  the  fact  that  he  is  generally  the  head  office  man, 
in  charge  of  the  bookkeeping  department  and  the 
collections.  From  the  bookkeeping  and  collection 
records  only  can  the  credit  man  know  how  much  each 
customer  owes,  how  much  he  buys,  and  how  much 
he  pays.  It  is  necessary,  therefore,  not  only  that  he 
have  constant  access  to  the  books  and  records,  but 
also  that  he  have  control  of  the  methods  in  which 
they  are  kept,  in  order  that  they  may  fit  into  his 
general  system. 

He  must  also  keep  in  touch  with  the  sales  depart- 
ment of  the  home  office,  for  he  should  know  what 
profit  the  various  kinds  of  goods  bear.  A  house  can 
afford  to  take  a  longer  chance  on  an  order  carrying 
a  large  profit  than  on  one  in  which  the  margin  of 
profit  is  very  small,  a  default  in  whose  payment  would 
mean  almost  a  total  dead  loss. 

Every  credit  man,  aside  from  the  information 
he  obtains  regarding  customers  from  various  sources 
at  the  time  of  deciding  on  the  shipment  of  specific 
orders,  should  revise  his  information  on  his  active 
customers  regularly  twice  a  year,  each  season  before 
he  ships  goods.  This  serves  to  keep  him  in  touch 
with  all  his  customers  and  their  accounts,  even  those 
whom  he  considers  absolutely  beyond  suspicion;  it 
rearranges  and  revivifies  the  facts  he  has  stored  in 
his  memory,  and  his  records  are  kept  fresh  and 
up-to-date. 

Personal  touch  between  credit  man  and  customer 
should  be  a  valuable  factor  in  the  making  of  credits. 
If  it  is  not,  if  the  hold  of  the  house  on  the  customer 


EDWARD    M.  SKINNER  97 

is  weakened  by  such  personal  contact,  it  reflects 
greatly  on  the  merits  of  the  credit  man.  It  depends 
entirely  on  the  personality  of  the  credit  man  as  to 
whether  a  personal  interview  with  his  customers  is 
going  to  be  of  value  to  him  in  judging  of  their  con- 
dition, and  of  value  to  the  house  through  the  favor- 
able impression  made  on  the  customers  by  the  credit 
man.  It  all  goes  back  to  the  question — has  the  credit 
man  that  most  important  qualification  of  any  busi- 
ness man,  tact,  ability  to  handle  men? 

The  fact  on  the  one  hand  that  the  credit  man 
must  know  about  payments  of  bills  in  order  to  pass 
The  Credit  ^°  orders,  and  that  he  alone  has  the 
Man  as  intricate  knowledge  of  customers  which 

Collector  ^jjj  indicate  how  to  handle  accounts  for 

collection,  naturally  places  the  collection  department 
under  his  control. 

A  credit  man,  to  be  successful,  must  be  a  good 
collection  manager,  a  good  collector.  He  must  know 
that  prompt  collection  of  accounts  is  more  than  half 
the  game  in  keeping  the  percentage  of  losses  down, 
and  he  must  know  how  to  educate  his  customers  into 
prompt  payers  of  their  own  volition.  Customers 
who  are  perfectly  good  are  often  as  slow  in  remitting 
as  the  more  doubtful.  The  collection  department 
should  be  strict  with  all  alike;  it  should  be  after  a 
debtor  the  minute  a  bill  is  due,  no  matter  how  good 
he  is,  and  stick  to  him  until  the  indebtedness  is  paid. 
A  house  which  is  a  prompt  collector  and  shows  its 
customers  thereby  that  their  accounts,  which  con- 
stitute its  business,  are  watched  will  command  more 
respect  than  the  careless  house,  and  will  invariably 
be  paid  first. 

This  does  not  mean  that  annoying  or  oflFenslve 


98  CREDITS  AND  COLLECTIONS 

methods  need  be  resorted  to  by  a  house  the  moment 
a  bill  is  overdue.  A  statement  before  the  account  is 
due,  marked  with  some  excusatory  phrase,  as  "For 
Correction,"  may  be  followed  by  a  second  statement 
for  a  reminder.  After  a  reasonable  length  of  time 
has  elapsed,  sight  draft  may  be  made  on  the  debtor. 
This  is  no  such  infallible  method  now  as  it  once  was, 
when  dishonor  of  a  sight  draft  was  a  confession  of 
insolvency.  A  sight  draft  has  lost  all  its  terror,  and 
a  merchant  thinks  no  more  of  refusing  to  meet  it 
than  he  does  of  putting  off  the  payment  of  an  ordi- 
nary bill.  The  change  has  come  about  gradually  and 
is  the  fault  of  the  creditor  class;  in  this,  as  in  many 
other  phases  of  collections,  they  have  been  and  still 
are  too  lenient. 

If  a  draft  is  returned  dishonored,  the  handling 
of  the  account  from  this  point  on  depends  entirely 
on  the  credit  man's  methods  and  the  nature  of  the 
customer,  and  no  one  course  of  procedure  can  be 
laid  down  as  the  correct  one  to  use  in  all  cases,  nor 
would  all  agree  on  the  handling  of  a  single  given  case. 
Credit  clearing  drafts  are  very  effective,  because  if 
such  a  draft  is  dishonored  the  merchant  knows  that 
this  fact  is  going  to  be  communicated  to  all  the 
members  of  the  credit  clearing  association,  upon 
whom  he  must  depend  for  his  supplies,  and  he  is 
only  too  well  aware  of  how  seriously  this  will  impair 
his  credit.  A  collection  agency  draft  is  similarly 
efficacious.  It  is  often  well,  in  working  on  stubborn 
collections,  to  call  the  debtor's  attention  to  the  fact 
that  he  is  hurting  his  credit,  for  there  he  is  touched 
in  a  vital  and  sensitive  spot. 

Great  conservatism  should  be  practised  in  the 
policy  of  granting  extensions.    Good  and  substantial 


EDWARD    M.  SKINNER  99 

reasons,  personal  or  local,  should  be  demanded  from 
the  debtor  to  account  for  delay  in  payments  before 
extensions  are  granted,  and  a  thorough  knowledge 
of  his  condition  required.  If  more  time  is  given,  the 
creditor  should  seek  to  keep  in  closest  touch  with 
the  debtor  and  his  affairs. 

Sharpness  and  quick  action  are  necessary  when  a 
debtor  fails  both  to  pay  his  account  and  to  give  any 
The  Credit  satisfactory  reason  for  his  delay  in  pay- 
Man  and  ing,  after  repeated  letters  from  the 
the  Debtor  creditor  have  admonished  him.  If  the 
debtor  only  knew  it,  the  credit  man  is  the  one  person 
to  whom  he  should  unburden  himself  under  such 
circumstances,  for  he  is  generally  as  worried  over  the 
account  as  the  debtor  himself  and  as  anxious  to  settle 
it,  and  is  ready  to  meet  him  halfway.  A  credit  man 
will  never  "turn  down"  a  man  who  tells  him  the  truth, 
and  will  always  do  his  best  to  arrange  a  satisfactory 
settlement.  If  such  a  customer  but  appreciated  the 
liberal  feeling  of  the  credit  department  toward  him, 
and  would  simply  write  to  the  credit  man  when  his 
bills  mature  and  he  is  unable  to  make  payment,  and 
would  make  some  definite  arrangement  for  the  pay- 
ment of  the  account,  he  would  be  surprised  to  find 
how  easy  it  would  be  made  for  him.  The  credit  man 
always  wants  to  help  the  honest  debtor  if  he  can;  if 
the  debtor  will  not  let  him,  he  is  helpless.  If  he 
makes  an  offer  and  the  debtor  pays  no  attention  to 
it,  the  credit  man  is  at  the  end  of  his  string.  A 
customer  ought  never  to  feel  that,  because  his  bills 
are  past  due  and  he  is  unable  to  pay  them,  he  will 
fail  to  meet  consideration  at  the  hands  of  the  credit 
man.  The  worse  the  condition  he  is  in,  the  more 
anxious  the  credit  man  is  to  help  him,  for  he  cannot 


100  CREDITS  AKD  COLLECTIONS 

get  his  own  money  without  helping  the  debtor.  This 
may  be  a  selfish  motive,  but  for  that  very  reason  it 
is  a  powerful  one. 

In  all  his  efforts  at  collection  the  credit  man 
should  never  give  offense;  let  him  throw  the  tuft  of 
grass  first,  just  to  call  the  debtor's  attention  to  what 
may  come.  If  this  does  not  work,  the  credit  man  may 
give  him  the  rock — but  only  as  a  last  resort,  for 
stringent  methods,  the  collection  of  an  account  by 
legal  means,  will  surely  mean  the  loss  of  the  customer 
in  question.  This  is  inevitable  for  three  reasons:  The 
credit  man  will  always  suspect,  and  justly,  such  a 
customer,  for  nowadays  a  man  must  treat  his  account 
pretty  badly  to  have  it  put  into  an  attorney's  hands, 
and  so  he  will  hesitate  to  extend  him  credit  again. 
Second,  this  will  be  a  good  account  to  drop  anyway, 
for  a  man  who  has  been  sued  by  a  creditor  usually 
treasures  it  up  against  him  and  will  take  a  joy  in 
sticking  him  if  ever  opportunity  offers.  Third,  the 
customer  will  very  rarely  himself  come  back  to  trade 
with  a  house  which  has  sued  him. 

Never  to  compromise  an  account  seems  to  me  a 
poor  policy  for  any  house  to  adopt  The  usual  and 
fairest  and  most  satisfactory  method  in  the  case  of 
an  insolvent  debtor  is  for  the  smaller  creditors  to 
accept  any  percentage  or  other  settlement  thought 
fair  and  just  by  the  larger  creditors.  The  latter, 
having  most  at  stake,  will  always  investigate 
thoroughly  and  can  be  depended  upon  to  make  the 
best  possible  terms.  It  is  fairest  for  all  houses  to 
be  thus  guided  by  the  desires  of  the  larger  creditors, 
for  it  is  a  reciprocal  arrangement. 

The  most  frequent  source  of  commercial  losses 
is  probably  the  giving  of  too  long  a  line  of  credit 


EDWARD    M.  SKINNER  101 

to  small  new  merchants  because  of  a  fear  that  a 
competitor  may  get  the  order.  The  larger  proportion 
of  a  credit  man's  losses  comes  from  carelessness; 
that  is,  not  from  bad  judgment  in  granting  credit,  but 
from  negligence  and  hastiness  in  extending  that 
credit  to  further  and  larger  orders  without  keeping 
in  touch  with  the  account  and  verifying  his  informa- 
tion on  the  customer.  The  account  once  opened,  the 
busy  credit  man,  getting  the  name  of  the  customer 
in  his  mind,  passes  future  orders  through  and  allows 
the  account  to  increase  without  proper  knowledge 
and  consideration. 


CHAPTEE    IX 

CREDITS     AND     COLLECTIONS     IN     A     MANU- 
FACTURING HOUSE 

By  BERTHOLD  E.  BORGES 
Of  The  Sherwin-Williams  Company 

In  a  consideration  of  the  subject  of  the  manage- 
ment of  credits  and  collections  in  a  manufacturing 
house,  it  will  be  found  that  the  problems  involved  and 
the  methods  used  are  much  the  same  as  those  of  a 
wholesale  house,  for  the  tendency  is  growing  stronger 
for  the  manufacturing  house  to  deal  directly  with 
the  retailer,  and  even  the  large  consumer,  without 
the  intervention  of  the  jobber.  But  even  though  we 
look  upon  the  manufacturer  as  one  who  deals  with 
the  jobber,  and  the  wholesaler  as  one  who  deals  with 
the  retailer  direct,  there  would  be  very  little  differ- 
ence in  their  methods  of  conducting  credits,  for  the 
same  care  must  be  exercised  in  extending  credit  to  a 
large,  well-known  jobber  as  to  a  small,  unknown  re- 
tailer. The  only  difference  is  that  the  jobber's  ac- 
count is  many  times  as  large  as  the  retailer's  and 
hence  requires  many  times  the  care  and  often  involves 
many  times  the  worry  that  a  smaller  account  does. 
The  source  of  information,  the  method  of  gathering  it, 
and  the  consideration  of  it,  are  the  same  in  the  two 
cases. 

It  is  in  the  attitude  he  takes,  the  object  he  has  in 
view,  his  general  policy,  that  the  credit  man  of  a  man- 
ufacturing house  differs  widely  from  the  credit  man 

102 


BERTHOLD    E.  BORGES  103 

of  a  jobbing  house.  The  manufacturer  works  nation- 
ally and  even  internationally,  the  jobber  locally.  The 
manufacturer  hails  with  delight  an  order  from  a  far 
corner  of  the  country;  the  jobber  will  look  upon  it 
with  suspicion.  The  jobber  has  a  particular  territory 
in  which  he  sells,  which  he  tries  to  cover  thoroughly, 
and  he  must  sell  to  almost  any  one  of  any  standing 
in  his  territory;  the  manufacturer  need  not  sell  in- 
discriminatel}',  he  merely  takes  the  cream  of  the  re- 
tail trade,  the  big  retailers  who  stand  head  and  shoul- 
ders above  their  competitors  and  whom  it  is  to  his 
advantage  to  have  on  his  list  of  representatives.  He 
can,  in  a  way,  choose  his  own  customers,  selecting  the 
best,  and  still  dealing  with  the  poorer  risks  through 
a  middleman.  The  credit  man,  by  simply  referring 
the  latter  to  a  jobber,  can  refuse  credit  without  ap- 
pearing to  do  so. 

There  is,  however,  another  consideration  which 
sometimes  compels  the  manufacturer  to  assume 
^Q^  an    extraordinary    risk.      A  jobber  car- 

Credits  ries   various    lines   of   goods.      He   sim- 

Differ  ply  ^jgjjgg   fQ  (Jq  3^   certain   volume   of 

business  in  a  certain  territory.  If  he  can  do  this  vol- 
ume of  business  in  eight  cities  of  a  territory  in  which 
there  are  twelve,  he  will  let  the  other  four  go.  A  man- 
ufacturer is  usually  putting  out  an  advertised  line  of 
goods,  and  he  desires  to  be  represented,  broadly  speak- 
ing, everywhere.  He  cannot  afford  to  pass  over  one 
large  commercial  center,  for,  having  by  his  advertis- 
ing created  a  demand,  there  is  possibility  of  loss  in 
failing  to  supply  the  demand  and  danger  to  his  reputa- 
tion by  not  offering  facilities  by  which  people  can  se- 
cure his  goods.  Thus,  the  credit  man  of  a  manu- 
facturing house,  in  order  that  his  goods  may  be  on 


104  CREDITS  AND  COLLECTIONS 

sale  in  a  certain  town  or  district,  is  often  compelled 
to  take  more  dangerous  risks  to  accomplish  this  ob- 
ject than  a  jobber  would  ever  take. 

To  demonstrate:  A  manufacturing  house  often  has 
a  new  line  of  goods  which  it  wishes  to  introduce.  To 
do  this,  it  must  be  willing  to  take  extraordinary  credit 
risks.  The  manufacturing  house  is  the  pusher  of  the 
goods,  and  often  places  them  merely  for  the  adver- 
tising effect.  It  is  never  the  purpose  of  a  jobbing 
house  to  merely  get  goods  before  the  public.  Its  pur- 
pose is  always  to  sell  a  staple  with  the  required  mar- 
gin of  profit. 

A  credit  man  of  a  manufacturing  house  must 
always  keep  a  watchful  eye  on  the  stock,  for  in  some 
lines  of  trade  the  goods  left  over  at  the  end  of  the 
season  are  so  much  dead  loss.  One  of  his  objects 
must  be  to  distribute  the  sale  of  goods  in  such  a  way 
that  at  no  time  will  the  bulk  of  credit  be  in  any  one 
district,  and  that  at  no  time  will  the  bulk  of  sales  be 
segregated  in  a  particular  period  of  the  year  and  so 
conflict  with  a  systematic,  even  output  of  the  factory. 
This,  again,  is  more  the  duty  of  the  sales  department, 
and  yet  the  credit  man  can  render  marked  aid.  In 
most  manufacturing  business  there  are  one  or  two 
seasons  of  the  year  when  the  consumers'  demand  is 
particularly  heavy.  The  retailer  will  be  most  inclined 
to  lay  in  a  stock  of  goods  just  before  these  seasons 
begin.  I  need  hardly  make  the  point  that  a  factory 
whose  output  is  evenly  distributed  over  the  twelve 
months  of  the  year  will  have  a  much  lower  production 
cost  per  unit  than  if  the  output  is  crowded  into  one  or 
two  periods  of  three  months  each.  Now,  by  making 
the  terms  of  payment  to  the  jobber  and  retailer  longer, 
a  credit  man  can  secure  orders  several  months  before 


BERTHOLD    E.  BORGES  105 

the  consumer's  demand  begins.  And  if  there  be  an 
understanding  between  the  credit  man  and  the  sales 
department,  by  which  the  salesmen  will  secure  such 
orders  from  the  best  customers  of  the  house,  the  credit 
man  can  make  his  terms  of  payment  such  that  cus- 
tomers will  suffer  no  disadvantage  through  early 
ordering. 

In  his  direct  relation  with  the  sales  department, 
the  credit  man  should  look  upon  it  as  he  does  upon 
Relation  of  *^®  jobber.  It  is  merely  a  selling  agent, 
Other  Depart-and  must  be  watched  in  the  same  way  as 
ments  ^    jobber    as  to    terms,    discounts,  and 

prices.  The  credit  man  must  really  act  as  a  tail  upon 
the  over-zealous  sales  kite.  He  should  be  the  watch 
dog  of  the  treasury.  Whether  it  confesses  it  or  not, 
the  object  of  the  sales  department  is  to  sell  as  many 
goods  as  it  can  snmggle  through  the  credit  depart- 
ment, and  the  credit  man  must  realize  this. 

But  the  most  fatal  thing  for  a  business  is  lack  of 
complete  harmony,  good  understanding  and  co-oper- 
ation between  the  credit  and  sales  department.  The 
credit  man's  object  is,  just  as  much  as  the  sales  de- 
partment's, increase  in  the  volume  of  the  sales,  but  he 
adds  the  saving  clause,  "with  the  lowest  percentage 
of  loss  and  with  the  least  expenditure  of  money."  As 
will  appear  in  the  course  of  this  discussion,  the  sales- 
men can  be  of  much  help  to  the  credit  man  in  his 
own  work,  and  he  cannot  afford,  under  any  consider- 
ation, to  be  on  anything  but  the  most  friendly,  har- 
monious and  co-operative  basis  with  them. 

The  relation  of  the  credit  man  to  the  advertising 
department  should  also  be  close.  He  should  always 
be  broad  enough  to  see  that  anything  which  conduces 
to  advertising  goods  and  to  giving  the  public  a  good 


106  CREDITS  AND  COLLECTIONS 

impression  is  worth  while  trying.  He  must  often  sell 
merely  for  the  sake  of  being  represented  in  a  locality. 
Therefore  he  should  be  in  close  touch  with  the  adver- 
tising department,  in  order  to  know  what  goods  to 
push,  and  on  what  goods  to  take  risks  for  the  sake  of 
publicity.  For  these  reasons,  he  should  have  some- 
thing to  say  in  regard  to  the  advertising  policy  of  the 
house. 

In  the  promotion  which  is  done  through  corre- 
spondence and  other  means  from  the  home  office,  the 
credit  man  should  have  an  influential  part.  There 
can  be  no  profit  in  promoting  business  with  a  dan- 
gerous credit  risk.  The  credit  department  should 
have  in  its  hands  the  classification  of  the  firms  which 
the  promoting  department  is  trying  to  interest. 

The  credit  man  should  be  the  head  of  the  book- 
keeping department,  at  least  so  far  as  the  accounting 
methods  and  treatment  of  customers  are  concerned. 
He  is  the  most  familiar  with  customers,  and  comes 
in  closest  touch  with  their  accounts.  The  accounting 
methods  should  conform  to  his  needs  and  to  his  policy 
of  handling  customers.  With  salesmen's  records  and 
purely  financial  records  he  need  have  no  direct  con- 
nection. 

The  knowledge  which  the  credit  man  of  a  manu- 
facturing house  should  have  is  of  three  distinct  kinds. 

Knowledge  ^^  ^^®  ^^^*  place,  he  should  have 
Necessary  to  knowledge  of  business  operations  and  a 
Credit  Man  general  understanding  of  financial  con- 
ditions all  over  the  country.  Inasmuch  as  the  busi- 
ness of  a  manufacturing  house  is  national,  the  credit 
man  should  know  the  condition  of  the  whole  country 
and  the  commercial  districts  into  which  it  divides 
itself.    Very  often  one  section  of  the  country  is  under- 


BERTHOLD    E.  BORGES  107 

going  an  industrial  depression,  while  another  is  en- 
joying boom  times.  He  should  be  able  to  analyze  such' 
financial  conditions  and  to  apply  them  to  the  pro- 
tection or  furtherance  of  his  business. 

In  the  second  place,  a  credit  man  should  have  a 
thorough  understanding  of  the  actual  manufacturing 
and  operative  details  of  his  own  business.  He  should 
know  the  value  of  goods,  the  margin  of  profit  and 
the  stock  oh  hand.  He  can  afford  to  take  a  longer 
chance  on  goods  which  show  a  large  margin.  He 
should  be  able  to  estimate  the  amount  of  an  order 
without  having  to  look  up  each  item;  if  he  were  com- 
pelled to  do  this,  his  day  would  need  to  be  three 
times  as  long  as  it  is. 

The  very  best  man  for  any  credit  department  is 
one  who  has  grown  up  with  the  business.  More  than 
any  other  executive,  the  credit  man  should  know  the 
history,  circumstances  and  possibilities  of  all  its 
customers  and  accounts  and  the  policy  and  purposes 
of  his  house.  This  he  can  only  learn  by  long  contact 
with  them  in  the  bookkeeping  and  collection  depart- 
ments, and  by  an  understanding,  through  experience, 
of  the  relation  of  the  house  to  its  customers. 

In  the  third  place,  a  credit  man  should  have  some 
knowledge  of  the  management  and  operation  of  any 
line  of  business  in  which  his  particular  customers 
are  engaged,  even  though  the  goods  which  his  house 
sells  may  consist  of  the  smallest  part  of  the  custom- 
ers' stock.  A  manufacturing  house  may  sell  the  hard- 
ware man,  the  general  storekeeper,  the  business 
specializing  in  its  one  line  only,  the  manufacturer, 
and  direct  to  the  customer.  The  credit  man  must 
gauge  the  credit  to  which  a  customer  is  entitled  in 
proportion  to  the  ratio  which  his  goods  bear  to  the 


108  CREDITS  AND  COLLECTIONS 

whole  business.  That  is,  if  a  buyer's  credit  line  is 
$10,000,  and  my  goods  will  be  only  one-tenth  of  that 
stock,  he  is  not  entitled  to  more  than  |1,000  worth 
of  credit  from  me,  for  very  probably  he  will  receive 
at  least  $9,000  worth  from  other  sources.  If  each 
credit  man  were  careful  to  limit  the  extension  of 
credit  to  his  proper  proportion,  there  would  never 
be  that  overbuying  on  the  part  of  the  retailer  which 
is  so  often  the  forerunner  of  insolvency. 

If  the  credit  man  has  this  knowledge,  not  only 
can  he  judge  credits  better,  and  can  extract  from  the 
agency  reports  that  come  to  him  the  exact  condition 
of  the  customer's  business,  but  when  his  relations 
with  a  customer  have  become  intimate  enough,  he  can 
act  as  an  adviser. 

The  credit  man  should  finally  be  somewhat  of  a 
financier  and  something  of  a  lawyer.  He  has  his 
fingers  on  collections,  the  incoming  money,  and  on 
credits,  the  source  of  incoming  money.  Even  though 
he  knows  that  a  customer  is  good  for  a  long  line  of 
credit,  often  the  financial  condition  of  his  house  will 
not  allow  of  such  favors.  To  work  intelligently  along 
this  line  he  must,  of  course,  understand  the  condition 
and  policy  of  his  house.  He  must,  in  fact,  have  such 
knowledge  that  he  could,  at  any  time,  take  over  the 
duties  of  the  treasurer.  He  must  be  able  to  grasp 
anything  pertaining  to  figures,  for  it  is  often  from  a 
mass  of  figures  that  he  has  to  deduce  his  conclusions. 
That  he  needs  a  knowledge  of  the  law  is  evident. 
Primarily,  he  should  know  the  law  in  so  far  as  ex- 
tending credits  and  making  collections  are  concerned. 
Further,  not  infrequently  he  has  occasion  to  act  as 
receiver  and  trustee  for  an  insolvent  business,  and  to 


BEllTHOLD    E.  BORGES  109 

do  this,  more  than  an  elementary  legal  knowledge  is 
necessary. 

Character,  estimated  worth,  volume  of  business 
and  expenses — these  four  attributes  are  the  basis  of 
Sources  of  credit.  If  a  man  is  lacking  or  weak  in 
Credit  any  one  of  these,  experience  only  will  in- 

Information  ^j^ate  to  what  extent  such  an  account  is 
desirable.  It  is  not  entirely  true  that  such  an  account 
is  undesirable  or  unsafe.  Character  and  reputation 
are  perhaps  the  most  important,  for  an  honest  man 
will  pay  if  he  has  the  money,  and  often  if  he  has  not. 
The  dishonest  man  will  seek  to  evade  payment 
whether  he  has  the  money  or  not.  In  this  connec- 
tion, it  is  well  to  remember  that  the  location  of  a 
man's  business  and  his  surroundings  make  a  differ- 
ence in  the  comparative  importance  of  these  four 
characteristics. 

There  are,  broadly  speaking,  four  sources  of  in- 
formation open  to  the  credit  man.  Agency  reports, 
exchange  trade  information,  local  reports,  and  in- 
formation from  salesmen.  The  concerted  action  of 
all  of  these  is  the  only  systematic  and  satisfactory 
way  of  making  credits.  The  credit  man  should  have 
all  the  information  obtainable;  everything  should  go 
into  his  hopper. 

A  very  important  consideration  which  credit  de- 
partments often  overlook  is  that  information  which 
can  be  procured  without  delay  is  most  advantageous. 
This  is  especially  true  in  a  manufacturing  business, 
where  the  goods  are  frequently  manufactured  after 
the  order  has  been  taken.  In  passing  an  order 
through  quickly  and  getting  the  goods  shipped,  the 
credit  department  gives  no  opportunity  for  canceling 
or   countermanding.    The   credit   department  should 


110  CREDITS  AND  COLLECTIONS 

never  be  guilty  of  handicapping  the  sales  department 
through  delays,  for  this  is  one  loophole  through 
which  a  competitor  creeps  into  a  customer's  favor. 
It  is  for  the  credit  man  to  judge  when  the  need  for 
caution  is  overweighed  by  the  need  for  promptness, 
and  whatever  way  he  decides,  let  him  act  quickly, 
for  indecision  in  the  credit  department  is  an  in- 
tolerable fault. 

The  mercantile  agencies  perform  a  necessary 
function.  The  betterment  of  their  service  lies  in 
the  hands  of  those  they  serve  rather  than  with  them- 
selves. If  the  patrons  want  good  services,  they  should 
help  to  make  them  better,  and  for  that  reason,  if  a 
credit  man  learns  or  believes  certain  individuals  a 
poor  risk,  he  should  make  this  fact  known  as  gen- 
erally as  possible  through  agencies.  This  reciprocal 
relation,  if  carried  out  to  a  larger  extent,  would 
greatly  simplify  and  improve  conditions  for  a  credit 
man's  work.  Competition  among  agencies  themselves 
will  produce  better  services,  and  it  is  good  policy  for 
the  credit  man  to  encourage  such  competition.  And 
again,  from  another  point  of  view,  the  mere  fact  that 
a  merchant  knows  that  he  is  being  watched  and  his 
condition  is  known  to  his  creditors  influences  him 
to  preserve  his  commercial  integrity  intact  and  un- 
stained. 

Local  attorneys  and  banks  can  give  first  hand 
information,  and,  if  they  are  treated  fairly,  will  usu- 
ally give  good  service.  Their  information,  however, 
must  be  carefully  analyzed  and  should  generally  be 
discounted.  By  this,  I  do  not  mean  to  say  that  their 
reports  are  not  the  exact  truth,  but  it  must  be  re- 
membered that  they  are  written  from  a  local  ultra- 


BERTHOLD    E.  BORGES  111 

familiar  and  often  partial — whether  towards  friendli- 
ness or  hostility — point  of  view. 

Trade  information,  when  it  can  be  secured,  af- 
fords the  surest  source  for  the  tangible  facts  con- 
cerning a  customer's  past  credit  relations.  Good  trade 
information,  supplemented  by  reports  from  salesmen 
trained  for  credit  observations,  would  be  an  ideal 
combination  for  securing  information  on  which  to 
base  credit.  The  objection  to  interchange  informa- 
tion has  always  been  that  it  is  incomplete,  for  very 
rarely  can  all  a  man's  creditors  be  reached,  and  it 
is  slow  to  gather. 

The  possibilities  for  securing  credit  information 
from  salesmen  are  infinite.  I  have  stated  that  first 
Salesmen  hand  information  is  safest  and  most 
as  Credit  satisfactory  for  the  credit  man.  The 
Beporters  salesman  is  a  sure  source  from  which  it 
can  be  secured  in  trustworthy  form.  Mercantile  re- 
porters, while  of  more  than  ordinary  intelligence,  are 
neutral,  and  therefore  get  information  only  which  ab- 
sence of  specific  interest  can  secure.  The  selling  force 
of  a  house  is  its  sole  outside  representation — its  other 
image.  Not  only,  therefore,  from  the  point  of  view 
of  making  good  sales,  but  also  from  the  point  of  view 
of  reputation,  it  behooves  a  house  to  get  a  high  grade 
of  men  as  salesmen.  If  it  is  the  policy  of  the  house 
to  do  this,  or  if  the  credit  man  will  use  his  influence 
in  the  establishing  of  such  a  policy,  the  credit  man 
can  easily  train  these  salesmen  for  use  in  his  depart- 
ment. 

He  should,  to  a  certain  extent,  let  the  salesmen 
know  the  policy  which  he  is  pursuing,  his  methods 
and  purposes.  He  should  teach  the  salesman,  in  the 
first  place,  what  kind  of  information  he  wants  and 


112  CREDITS  AND  COLLECTIONS 

why  he  wants  it.  He  must  make  the  salesman  un- 
derstand what  credit  information  consists  of,  how 
a  man  is  to  be  approached  in  order  to  get  it.  It  is 
possible  to  get  any  information  desired  if  the  man 
is  approached  in  the  right  way,  and  a  good  salesman 
who  knows  men  and  human  nature  can  be  relied 
upon  to  get  anything  he  goes  after.  If  it  is  made 
part  of  a  salesman's  duty  to  express  his  opinion  of 
the  risk  on  each  order  he  gives,  and  the  salesman  is 
given  to  understand  and  knows  by  experience  that 
his  judgment  is  to  be  a  determining  factor,  he  will 
take  pride  in  making  it  reliable.  It  flatters  a  salesman 
to  know  that  his  opinion  is  of  some  weight.  The  fact 
should  be  impressed  upon  him  that  this  is  a  part  of 
his  work,  that  a  sale  is  not  complete  until  he  has 
expressed  his  opinion  upon  the  risk. 

A  credit  interchange  system  could  give  the  best 
trade  facts  regarding  a  customer;  information  as  to 
how  he  has  paid  his  bills  in  the  past,  what  his  credit 
standing  has  been.  A  mercantile  agency  can  give 
a  man's  business  history  and  record  for  a  number 
of  years  past.  The  salesman  could  furnish  the  rest. 
Being  on  the  ground,  he  can  denote  the  standing 
which  the  customer  occupies  in  his  community,  how  he 
is  looked  upon  financially  and  socially,  what  his  repu- 
tation for  character  and  integrity  is.  He  can  observe 
a  man's  method  of  managing  his  business,  the  char- 
acter of  his  patronage  and  the  amount  of  his  stock. 
Working  with  the  salesman,  it  is  very  easy  for  a 
credit  man  to  prevent  a  customer's  overbuying,  and 
the  salesman  should  be  especially  cautioned  in  regard 
to  this.  The  salesman,  in  his  periodical  visits  to  his 
customers,  should  each  time  consider  it  as  much  a 
part  of  his  work  to  inform  the  credit  man  of  the  con- 


BERTHOLD    E.  BORGES  113 

dition  of  the  customer,  of  any  change  for  the  better 
or  worse  which  has  occurred,  as  to  send  in  his  order 
to  the  sales  department. 

The  credit  man's  object  should  be  to  have  the 
salesman  as  anxious  to  make  a  showing  in  the  credit 
and  collection  part  of  the  business  as  in  his  own 
sales  department.  It  should  be  the  policy  of  the  house 
to  look  upon  that  salesman  as  best  in  whose  territory 
losses  are  lowest,  cancellations  are  fewest,  expenses 
smallest  and  general  conditions  least  complicated. 
Not  only  can  the  salesman  help  the  credit  depart- 
ment in  giving  information,  but  he  can  also  help  train 
a  customer  to  prompt  payments.  A  salesman  should 
never  be  made  a  collector,  for  that  will  hurt  his  po- 
sition as  salesman,  and  possibly  militate  against  his 
securing  orders,  but  he  can  in  an  adroit  way  compel 
a  customer  to  see  the  wisdom  of  keeping  his  credit 
sound  by  paying  promptly  and  to  take  pride  in  keep- 
ing his  account  with  the  house  well  in  hand. 

The  credit  man  should  be  honest  and  fair  to  a 
customer,  whether  old  or  new.  When  he  has  come  to 
Keeping  in  ^^^  decision,  especially  if  it  be  adverse, 
Touch  With  he  should  explain  to  the  customer  his 
Customers  course  of  reasoning  Credit  men  are 
now  attempting — and  they  are  succeeding  in  their  at- 
tempt— to  eradicate  the  general  idea  which  the  retail- 
ing class  has  had,  that, the  credit  department  is  an 
arbitrary,  cold-blooded  institution,  whose  reasoning 
is  a  mystery  not  to  be  solved  by  the  uninitiated,  and 
whose  conclusions  are  not  to  be  forecast.  If  a 
customer  were  given  to  understand  why  credit  is 
denied  him,  or  on  what  grounds  it  is  extended,  safe 
credit,  and  in  fact  the  extension  of  credit,  would  ad- 
vance into  a  still  broader  field.    "Honesty  is  the  best 


114  CREDITS  AND  COLLECTIONS 

policy"  is  an  old  aphorism,  but  many  men  have  yet- 
to  learn  the  business  value  of  honesty  and  frankness. 

A  new  account  opened,  the  credit  man  has  not 
disposed  of  his  subject.  Not  merely  a  first  order,  but 
every  succeeding  order,  requires  careful  investigation 
and  consideration.  The  difference  is  that,  while  in- 
vestigation on  a  first  order  must  be  done  at  one 
time,  specifically,  the  careful  credit  man  will  dili- 
gently watch  his  customers,  so  that  he  may  pass  on 
succeeding  orders  without  delay.  He  has,  then,  not 
only  extraneous  information  concerning  them,  but 
his  own  experience  with  them  to  aid  his  judgment. 

The  simplest  method  for  keeping  record  of  a 
customer  is  to  indicate  on  his  ledger  account  every- 
thing which  transpires — not  only  the  purely  book- 
keeping entries,  but  his  peculiarities,  his  methods  of 
payment,  synopsis  of  reports,  and  so  on. 

The  frequency  with  which  special  reports  should 
be  obtained  depends  upon  the  customer's  line  and  the 
condition  of  his  account,  but  all  information  should 
be  revised  at  least  once  a  year,  and  oftener  when 
the  risk  is  more  than  ordinary  or  when  an  increase 
of  a  credit  limit  or  an  extension  of  payment  is  asked. 
As  has  been  pointed  out,  salesmen  are  the  most  valu- 
able allies  of  the  credit  man  in  keeping  him  informed 
regarding  his  customers. 

It  is  not  necessary  for  the  credit  man  to  con- 
stantly pore  over  his  ledger  accounts.  But  every- 
thing which  pertains  to  a  customer  or  his  account, 
or  which  affects  his  credit,  should  pass  under  the 
credit  man's  notice.  This  involves  considerable  de- 
tail, and  each  credit  man,  according  to  his  needs, 
must  work  out  his  own  system. 

The  interchange  of  knowledge  and  ideas  neces- 


BERTHOLD    E.  BORGES  115 

sary  between  the  credits  and  collections  in  any  house 
makes  them  well  nigh  inseparable.  In  order  to  make 
credits  safely,  a  credit  man  must  have  the  knowledge 
which  comes  from  an  oversight  of  collections.  To 
make  collections  intelligently,  a  collection  manager 
must  possess  the  information  and  experience  acquired 
in  making  credits.  Injustice  to  customers  and  losses 
to  the  house  would  arise  were  the  two  departments 
kept  entirely  separate.  The  continuance  of  credit 
to  a  customer  depends  not  only  upon  his  respon- 
sibility, but  upon  the  manner  in  which  his  account 
is  cared  for.  The  condition  of  a  customer's  account 
is  a  more  potent  factor  in  the  continuance  of  credit 
than  any  one  other  consideration.  And  in  no  way 
can  the  credit  man  know  this  more  intimately  and 
more  easily  than  by  having  control  over  collections. 
A  man  with  his  finger  on  collections  can  make  his 
credits  in  less  time  and  more  accurately  than  one  who 
is  foreign  to  the  collection  department;  and  the  col- 
lection manager,  fresh  from  the  making  of  credits,  can 
conduct  the  collections  with  less  expense  and  less 
friction  than  an  independent  collection  manager. 

I  cannot  agree  with  those  who  would  allow  a 
first  order  to  pass  through  without  much  considera- 
tion, on  the  ground  that  they  can  do  the  investigating 
afterward  and  refuse  the  second  order  if  the  credit 
seems  doubtful.  The  time  for  refusing  credit  is  be- 
fore any  goods  have  been  shipped.  Nothing  is  more 
irksome  than  turning  a  man  down  or  holding  him  to 
a  short  line  of  credit  after  credit  has  once  been 
granted.  It  smacks  of  amateurism  and  indecision. 
It  is  very  poor  policy  for  a  credit  man  to  work  him- 
self into  such  a  position,  especially  when  he  is  handling 
an  advertised  article.     Furthermore,  granting  credit 


116  CREDITS  AND  COLLECTIONS 

on  a  first  order  often  leads  to  the  extension  of  credit 
on  a  second  and  third  to  make  good  on  the  payment 
of  the  first.  There  is  no  more  dangerous  course  than 
this. 

Manufacturing  terms  are  not  always  cash;  often 
they  are  based  on  the  requirements  of  the  buyer. 
Different  Each  line  of  business  has  certain  terms 
Terms  of  in  trade  all  its  own.  These  terms  are 
Payment  dictated  by  custom  and  are  so  well 
founded  that  rarely  is  there  any  question  of  terms 
at  all.  Generally  speaking,  manufacturing  houses  in 
the  same  line  grant  the  same  terms. 

But^  within  each  line  distinctions  are  usually 
made  between  terms  to  jobbers,  terms  to  retailers, 
and  sales  subject  to  special  terms  on  contract.  Briefly, 
the  general  principle  is  that  the  terms  should  be  such 
as  to  allow  the  buyer  to  realize  upon  the  goods  bought 
before  the  bills  for  them  fall  due.  Thus,  suppose 
the  season  for  a  certain  line  of  goods  opens  April 
1  and  closes  about  June  1.  Goods  shipped  to  jobbers 
as  early  as  December  1,  as  often  happens,  will  be 
billed  to  fall  due  on  June  1.  Now,  the  jobber  will 
probably  sell  to  the  dealer  on  March  1  on  ninety  days' 
time.  He  gives  ninety  days  in  order  that  the  dealer 
may  not  be  forced  to  pay  for  the  goods  until  he  him- 
self has  sold  them.  The  retailer  will  get  his  payment 
from  the  consumer  between  April  1  and  June  1.  He 
will  pay  the  jobber  by  June  1,  and  therefore  the 
jobber  will  pay  the  manufacturer  with  the  money  that 
he  has  realized  on  the  goods. 

On  a  new  line  of  goods  which  a  manufacturing 
house  is  very  desirous  of  placing  on  the  market,  even 
longer  terms  than  these  may  be  given,  purely  to  at- 
tract orders. 


BERTHOLD    E.  BORGES  117 

To  the  retailer  the  manufacturer  will  naturally 
sell  on  shorter  terms,  inasmuch  as  he  will  sell  to  him 
at  a  later  date  than  to  the  jobber,  and  hence  not 
so  long  a  time  is  necessary  for  the  retailer  to  realize 
upon  these  goods. 

Terms  by  one  manufacturer  to  another  who  uses 
the  goods  of  the  first  as  raw  material  in  manufactur- 
ing his  product  are  usually  the  same  as  to  a  jobber. 
His  orders  are  often  filled  on  contract,  and  the  terms 
are  then  a  matter  of  settlement  between  the  indi- 
vidual manufacturers. 

Settlement  by  note,  either  with  jobbers,  retailers 
or  manufacturers,  is  much  more  usual  with  a  manu- 
facturing house  than  with  any  other  concern.  It 
can  be  said,  however,  that  the  clever  credit  man  can 
make  the  terms  which  the  financial  policy  and  con- 
dition of  his  house  demands.  If  the  house  is  working 
on  small  capital,  the  credit  man,  by  giving  discounts, 
will  either  be  able  to  force  shorter  terms  on  his 
customer,  or  by  taking  notes  may  be  able  to  get 
the  use  of  the  money.  If  he  wishes  to  equalize  his 
product,  he  can  give  long  terms. 

To  make  terms  intelligently,  a  credit  man  should 
know  if  a  customer  has  many  of  his  accounts  falling 
due  at  the  same  time.  A  certain  account,  for  example, 
falls  due  on  June  1.  One  of  his  well-informed 
creditors,  knowing  this,  and  having  a  similar  matur- 
ing date  for  his  line,  knowing  how  difficult  it  will  be 
for  the  customer  to  pay  all  his  bills  at  this  one  date, 
and  that  he  will  probably  require  an  extension,  will 
equalize  these  payments;  for  instance,  he  will  offer 
to  allow  the  customer  to  pay  one-third  on  May  15, 
one-third  on  June  1,  and  one- third  on  June  15.  This 
proposition  will   probably  look   like  a  favor  to  the 


118  CREDITS  AND  COLLECTIONS 

debtor,  while  it  will  be  just  as  desirable  for  the 
creditor  as  to  have  the  whole  paid  on  June  1,  and 
much  better  than  to  grant  an  extension  on  all  of  it. 

In  collections,  the  most  important  thing  is  not 
to  collect  money  after  it  is  due,  but  to  educate  custom- 
Importance  ^r«  to  P^y  ^^"»  w^^°  t^^y  mature.  A 
of  Prompt  bill  should,  of  course,  be  sent  out  with 
Payments  ^^^j^  shipment.  It  is  well  to  send  state- 
ments on  the  first  of  each  month  to  all  jobbing  houses 
and  large  corporations  whose  accounts  bear  a  great 
variety  of  charges  each  month,  and  who  discount  their 
bills.  If  bills  are  not  paid  before  maturity,  there  is 
no  better  way  of  educating  customers  than  by  render- 
ing statements  on  the  very  day  their  bills  mature, 
notifying  them  of  the  fact,  and  stating  that  unless 
they  remit,  or  ask  some  other  form  of  settlement, 
draft  will  be  made  upon  them  within  a  certain  definite 
time.  The  practice  of  sending  out  statements  on  the 
first  and  fifteenth  of  each  month  for  accounts  which 
are  to  mature  during  the  next  fifteen  days  destroys 
the  chief  value  of  a  statement,  which  is  that  it  brings 
to  the  attention  of  the  debtor  the  fact  that  his  bill  is 
due  now  and  that  remittance  is  expected.  The  best  day 
on  which  to  remind  a  man  of  this  fact  is  the  very 
day  on  which  his  account  matures. 

The  notification  that  a  sight  draft  will  be  made 
on  debtor  if  his  account  is  not  paid  will  give  no 
offense  if  accompanied  by  the  saving  statement,  "un- 
less other  form  of  payment  is  desired."  This  gives 
the  debtor  the  opportunity  of  sending  his  check  in 
payment,  or  asking  for  an  extension  or  some  other 
settlement  than  a  sight  draft.  If,  however,  neither 
payment  nor  explanation  of  any  kind  is  received,  the 
credit  man  should  always  draw  the  sight  draft  on  the 


BEKTHOLD    E.  BORGES  119 

day  fixed.  It  is  not  good  business  policy  to  tamper  with 
a  customer's  feelings.  Do  what  you  say  you  will  do. 
Let  him  know  and  comprehend  the  policy  and  methods 
of  the  house  by  inference  from  their  constant  and 
regular  operation.  On  the  other  hand,  if  a  customer 
complains  that  he  does  not  like  that  manner  of 
settlement,  the  credit  man  should  never  let  a  com- 
plaint pass,  but  should  always  notify  the  customer 
that  he  will  be  glad  to  adopt  any  reasonable  method 
of  settlement  suggested,  and  then  demand  that  the 
customer  live  up  to  his  own  proposition. 

A  house  will  find  that,  if  consistently  followed, 
this  method  of  drawing  sight  drafts  is  not  offensive 
to  customers,  especially  the  country  trade.  Many  of 
these  do  not  keep  ledger  accounts  with  their  creditors. 
They  depend  solely  upon  the  bills  and  statements 
which  they  receive.  They  check  up  the  goods  when 
received  with  the  original  bill,  and  stick  it  on  a 
spindle.  When  the  statement  comes,  they  check  it  up 
with  the  bill,  and  either  remit  at  once  or  prepare 
to  honor  the  draft.  This  makes  a  very  simple  method 
of  bookkeeping  for  them  and  obviates  the  necessity 
for  keeping  an  account.  The  original  bill  is  their  book 
account,  the  statement  is  their  reminder,  and  their 
own  check  or  the  draft  returned  to  them  by  their 
bank   is  their  voucher  receipt. 

If  a  sight  draft  is  not  paid  when  presented  by 
a  local  bank,  it  is  best  to  order  the  draft  to  be  pre- 
Course  to  sented  again,  and  if  then  refused,  the 
Pursue  in  customer  should  be  asked  for  an  ex- 
CoUectmg  pianation.  By  using  the  ledger  system 
described,  the  dates  of  these  operations  and  com- 
ments can  be  noted  upon  the  ledger  by  the  book- 
keeper, so  that  the  transactions  can  be  followed  sys- 


120  CREDITS  AND  COLLECTIONS 

tematically  and  a  permanent  record  preserved. 

The  course  of  action  to  be  pursued  after  the 
second  refusal  to  honor  the  draft  depends  upon  the 
value  of  the  account,  the  credit  man's  experience  with 
the  customer,  and  his  financial  condition.  It  is  at 
this  stage  that  heart  to  heart  letters  are  very  telling. 
Nothing  appeals  to  a  man  like  presenting  a  case  to 
him  plainly  and  truthfully,  in  an  open,  fair  way. 
"Why,"  the  credit  man  may  ask  him,  "cannot  this 
house  demand  the  same  promptness  in  payments  from 
a  customer  as  the  latter  demands  from  the  house 
in  filling  his  orders?"  A  business  man  likes  to  be 
fair,  and  if  it  is  proved  to  him  that  he  is  being  treated 
fair  and  that  he  is  asked  merely  to  do  the  right 
thing  in  return,  it  is  rare  that  he  will  not  respond. 

Nothing  is  more  fatal  than  to  allow  overdue  col- 
lections to  drag  along.  When  a  customer  has  not 
asked  for  an  extension,  nothing  should  be  taken  for 
granted  by  the  creditor.  The  burden  of  asking  favors 
should  be  put  on  the  debtor,  especially  when  the 
creditor  has  done  his  part. 

A  collector  can,  on  the  one  hand,  be  over- 
sanguine  and  easy  and,  on  the  other,  too  suspicious. 
The  thing  he  should  always  consider  is,  Is  the  account 
in  jeopardy?  If  he  thinks  there  is  any  danger,  he 
should  place  the  account  in  such  condition  that  if 
anything  happens  it  will  be  safeguarded.  If  a  credit 
man  grants  a  favor  by  extending  time  for  payment 
on  an  account,  he  is  privileged  to  ask  for  something 
in  return;  that  is,  he  may  ask  for  some  surety  or 
guarantee  on  the  account.  If  such  a  proposition  is 
tactfully  put  to  a  customer,  it  will  generally  win  his 
assent.  In  such  instance,  it  is  always  better  to  see 
a  customer  personally.    What  can  be  said  can  often 


BERTHOLD    E.  BORGES  121 

not  be  written.  The  friendly  expression  of  a  man's 
face,  the  explanation  of  his  attitude  by  word  of 
mouth,  an  air  of  fairness  and  sympathy — things  which 
cannot  be  put  into  a  letter — will  place  what  may 
seem  like  a  hard  proposition  in  a  good  light.  If  a 
personal  interview  is  not  possible,  it  must,  of  course, 
be  left  to  correspondence.  The  essential  thing,  then, 
is  to  leave  no  loopholes  in  a  letter  which  will  allow 
the  debtor  to  prolong  the  matter.  State  your  propo- 
sition and  then  put  a  clause  on  the  end  of  it  which 
will  allow  of  no  if s  and  and's.  When  a  man  feels 
such  a  tone  in  a  letter,  friendly,  yet  final,  he  will  come 
to  terms  quickly.  Most  business  men  know,  and  all 
credit  men  should  bear  in  mind,  that  much  more  can 
be  settled  with  pen  and  ink  than  by  law. 

When  peaceful  methods  have  been  exhausted, 
only  one  recourse  remains — the  law.  Legal  action  is 
The  Les-al  ^npleasant  and  unfruitful,  and  the  credit 
Phase  of  man  should  avoid  it  as  long  as  possible. 

Collections      ^j^^^  j^^  ^^^  decided  that  this  is  the 

only  alternative,  however,  he  should  not  quibble 
farther  with  the  debtor,  but  carry  out  his  intention. 

For  a  concern  with  a  large  business,  the  best 
plan  is  that  it  have  its  own  general  attorney.  He 
knows  the  house,  is  familiar  with  its  business  and 
policy;  he  is  a  part  of  it.  He  can  handle  a  case  in  a 
way  that  a  foreign  attorney  cannot;  he  will  be  much 
more  determined  to  further  the  interests  of  the 
house,  for  he  is  working,  not  for  himself,  as  is  a  for- 
eign attorney,  but  purely  for  the  house.  He  will  also 
have  a  better  knowledge  of  the  case  in  question  and 
of  the  customer  himself,  for  as  house  attorney  much 
work  will  come  his  way  aside  from  the  legal  collec- 
tions, which  will  make  him  familiar  with  customers. 


122  CREDITS  AND  COLLECTIONS 

He  can  save  his  salary  in  commissions  paid  to  a  for- 
eign attorney,  and  do  mucli  otlier  work  besides. 
Chronically  slow  cases,  instead  of  being  placed  in  the 
hands  of  a  collection  agency,  can  be  placed  in  the 
hands  of  the  house  attorney  to  be  handled  at  his  dis- 
cretion. 

It  is  desirable  the  attorney  use  stationery  of  his 
own,  such  as  will  not  make  it  generally  known  that 
he  is  house  attorney,  for  an  unfavorable  impression 
may  obtain  among  customers  where  it  is  known  a 
legal  department  is  required.  It  is  preferable  to 
call  him  an  adjuster.  In  fact,  if  he  is  the  right  kind 
of  a  man,  he  will  turn  out  to  be  much  more  of  an  ad- 
juster than  a  collector,  and  for  this  additional  reason 
he  will  be  of  great  value  to  a  house. 

A  house  attorney  is  helpful  to  a  credit  man,  out- 
side of  his  collection  functions.  On  many  occasions, 
especially  if  the  credit  man  has  not  a  thorough  legal 
training,  an  advantage  which  only  a  small  majority 
of  credit  men  have,  he  would  have  been  saved  many 
worries  and  many  awkward  accounts  and  even  losses 
had  he  had  an  attorney's  advice. 

A  well  organized  collection  department  should 
be  able  to  carry  an  account  up  to  the  point  where  it 
is  turned  over  to  the  attorney  for  immediate  suit. 
The  services  of  a  collection  agency  between  the  stage 
where  the  collection  of  the  account  becomes  doubt- 
ful and  the  stage  where  it  is  placed  in  the  hands  of  an 
attorney  should  not  be  necessary.  The  collection 
agencies  are,  however,  a  great  help  to  a  small  house 
which  has  neither  the  time  nor  the  organization  to  put 
the  proper  effect  and  expert  services  into  collections. 

From  a  manufacturer's  point  of  view,  a  debtor 
whose  account  has  been  in  the  hands  of  an  attorney 


BERTHOLD  E.  BORGES  123 

is  not  necessarily  one  more  customer  lost,  for  this  cus- 
tomer may  be  the  best  man  in  a  town  to  handle  the 
manufacturer's  goods,  and  the  credit  man  must  so 
far  yield  to  the  interests  of  the  other  branches  of  the 
business  as  to  be  willing  to  open  the  account  again. 

As  a  general  proposition,  an  honest  debt  is  not 
open  to  compromise,  but  this  is  a  statement  which 
has  a  great  many  exceptions  and  is  subject  to  many 
extenuating  circumstances.  If  a  debtor  appears  to 
have  done  his  best  to  have  made  what  is  called  an 
"honest  failure,"  it  cannot  be  other  than  the  duty  of 
the  credit  man  to  his  firm  to  make  the  best  settle- 
ment possible.  In  the  case  of  a  compromise,  how- 
ever, there  should  be  a  definite  understanding  with 
the  other  parties  and  with  the  debtor  that  all  parties 
shall  share  alike.  It  is  in  just  such  matters  that  a 
credit  man,  if  he  is  a  good  financier  and  a  business 
man,  will  help  to  administer  affairs  of  the  debtor  in 
such  a  way  that  he  may  be  able  to  pull  out  of  a  bad 
hole.  Generally  speaking,  compromises  should  be  dis- 
couraged. If  investigation  shows  that  the  case  is 
one  of  fraud  or  cowardice,  rather  than  countenance 
such  proceedings,  concerted  action  on  the  part  of  all 
creditors  to  the  end  that  the  law  may  take  its  course, 
and  a  thorough  examination  into  his  affairs  be  made. 


CHAPTER    X 

CREDITS    AND    COLLECTIONS    IN    A    RETAIL 
HOUSE 

Bt  J.  W.  MCCONNELL 
Of  H.  G.  Selfridge  &  Company 

To  lay  down  general  rules  which  shall  guide  a 
retail  house  in  its  credit  relations  and  a  retail  credit 
man  in  the  conduct  of  his  department  is  peculiarly 
diflBcult.  So  much  depends  upon  the  kind  of  goods 
handled  by  the  house,  the  class  of  customers,  and  its 
geographical  situation,  that  not  even  the  most  general 
rules  will  hold  in  all  cases. 

Between  the  credit  activities  of  a  retail  house  and 
those  of  a  wholesale  concern  there  is  very  little  simi- 
larity. The  two  have  wholly  different  policies;  they 
deal  with  two  radically  different  kinds  of  patronage; 
their  attitude  toward  their  customers  differs  as  much 
as  do  the  two  classes  of  customers  themselves;  the 
information  upon  which  they  base  their  decisions  is 
dissimilar;  their  methods  of  opening  and  handling 
outstanding  accounts  have  little  in  common.  Their 
objects  are,  perhaps,  alike,  but  must  be  reached  by 
different  means. 

The  object  which  a  retail  credit  man  always  has 
in  view  is  an  increase  in  sales  with  a  minimum  of 
losses.  In  other  words,  he  wants  to  open  as  many 
accounts  as  possible,  but  open  them  on  such  a  basis 
and  watch  them  with  such  care  that  his  percentage  of 
losses  will  not  be  raised.    A  retail  credit  man's  value 

124 


J.  W.  McCONNELL  125 

is  much  more  often  judged  from  the  volume  of  sales 
than  is  that  of  one  in  a  wholesale  house.  The  credit 
man  should  realize  that  his  worth  to  the  house  he 
serves  is  directly  in  proportion  to  the  volume  of  his 
open  accounts.  If  his  accounts  run  to  the  amount  of 
one  million  dollars,  he  is  earning  just  twice  as  much 
for  the  house  as  if  they  were  five  hundred  thousand, 
always  provided  his  percentage  of  losses  does  not  in- 
crease. Although  a  bold  statement,  it  is  nevertheless 
true,  that  a  retail  house  may  do  well  to  encourage 
charge  accounts,  with  competition  as  sharp  as  it  is 
to-day.  The  cash  customer  flits  from  store  to  store; 
a  house  has  no  bond  strong  enough  to  hold  him;  a 
charge  account  affords  this  bond;  the  credit  customer 
will  buy  where  he  has  an  account.  It  is  part  of  the 
credit  man's  work  to  bind  customers  to  the  house. 

Now,  how  is  he  to  fulfill  this  important  function? 
■The  mere  extension  of  credit  is  not  suflBcient;  it  is 
Scope  of  °^*  even  a  case  of  prices  and  quality; 

Credit  Man's  the  sales  department  must  work  that  end 
Functions  ^f  j^.  j^  jg  much  more  a  matter  of  treat- 
ment and  service.  The  merchant  buying  from  the 
wholesaler  looks  at  but  two  things,  the  price  and  the 
quality;  service  may  enter  into  the  consideration,  but 
even  then  only  as  regards  promptness  and  accuracy. 
But  in  retail  trade,  service  and  treatment — the  meth- 
ods of  handling  and  taking  care  of  customers — are 
prime  considerations.  The  retail  customer  is  more  of 
a  human  personality,  and,  as  a  rule,  one  of  the 
"weaker  sex,"  consequently  less  of  a  hard  business 
machine  than  the  wholesale  buyer.  She  comes  in 
closer,  more  personal  contact  with  the  business,  she 
buys  in  person  at  the  store,  and  often  has  personal  in- 
terviews with  the  credit  man  or  the  heads  of  other  de- 


126  CREDITS  AND  COLLECTIONS 

partments.  She  requires  more  personal  care  than  the 
merchant,  and  the  fact  that  she  is  less  familiar  with 
business  operations,  more  sensitive  concerning  inter- 
rogations— primitively  human,  in  other  words — neces- 
sitates more  careful  handling. 

Because  the  credit  man  must  accomplish  this 
vitally  important  task  of  keeping  the  customer  satis- 
fied, it  is  essential  that  his  relations  with  other  de- 
partments of  the  house  be  such  as  to  command  atten- 
tion. He  should  exercise  a  general  oversight  over  at 
least  that  part  of  the  sales  end  of  the  business  which 
affects  the  treatment  of  customers.  This  is  a  broad 
statement,  and  will  extend  his  activities  into  the  sales, 
the  shipping,  the  complaint  and  the  employment  de- 
partments. To  carry  out  his  credit  functions  prop- 
erly, he  should  be  manager  of  the  bookkeeping, 
cashier's  and  collection  departments  also.  Their  sys- 
tem must  conform  to  the  demands  of  his  work,  and, 
in  order  to  watch  his  customers  and  their  accounts 
properly,  his  touch  with  these  departments  must  be 
so  close  that  separation  between  them  is  impracti- 
cable, if  not  impossible. 

Having  these  objects  to  accomplish,  what  are  the 
qualities  necessary  for  a  successful  credit  man?  He 
should,  above  all  things,  be  a  man  of  great  tact,  diplo- 
matic, capable  of  handling  men,  and  more  especially 
women.  He  comes  in  personal  contact  with  a  large 
number  of  people  daily,  men  and  women  who  cannot 
be  handled  in  a  technically  business  way  because  they 
know  little  of  commercial  affairs,  and  with  such  people 
it  is  much  harder  to  do  business  than  with  the  busi- 
ness man.  Under  the  necessity  of  acquiring  much  of 
his  information  by  personal  contact  with  people,  he 
should  be  able  to  draw  them  out  so  tactfully  that  he 


J.  W.  McCONNELL  127 

can  get  the  information  he  wishes  unawares.  This 
also  requires  ability  to  read  human  nature,  to  judge 
of  character  and  worth  simply  by  his  intuition,  and 
intuition  is  merely  acquired  knowledge  and  experience 
intelligently  applied. 

That  experience  in  the  operative  and  selling 
branch  of  his  business  is  of  great  value  to  a  credit 
man  cannot  be  denied.  A  credit  man  who  knows  the 
goods  his  house  carries,  their  different  grades  and 
qualities,  their  values,  their  cost  and  selling  price; 
who,  through  experience,  is  familiar  with  the  buying 
of  the  goods,  or  with  the  methods  of  selling;  who  can 
keep  in  touch  with  the  methods  of  competitors  in  all 
lines — such  a  man  naturally  has  an  advantage,  all 
other  things  being  equal,  over  a  credit  man  who  has 
always  been  an  office  man. 

As  the  wholesale  credit  man  should,  to  some  ex- 
tent, inform  himself  concerning  the  general  financial 
conditions  of  the  country,  so  the  credit  man  in  the 
retail  store  should  keep  in  touch  with  the  local  finan- 
cial or  commercial  conditions,  only  his  information, 
less  extensive,  must  be  much  more  minute  and  specific. 
If  a  large  manufacturing  house  in  his  locality  cuts 
down  its  force,  if  a  body  of  men  go  on  a  strike,  if 
a  plant  is  about  to  move  away  from  the  city,  all  such 
facts  he  must  know,  for  they  are  of  value  to  him  in 
making  his  decisions  on  credit  extensions.  The  credit 
man,  if  he  keeps  his  eyes  and  ears  open,  and  is  quick 
at  putting  two  and  two  together,  will  learn  and  absorb 
many  facts  each  day  concerning  his  customers.  The 
better  he  knows  his  community,  and  its  people,  the 
more  quickly  and  intelligently  will  he  be  able  to  make 
his  judgments,  the  less  he  will  annoy  his  patrons,  and 
the  safer  his  decisions  will  be. 


128  CREDITS  AND  COLLECTIONS 

The  information  upon  which  the  credit  man  bases 

his  judgment  is  such  as  will  tell  him  the  honesty  and 

integrity  of  the  customer,  his  worth  and 
Information  „.  j.  i  •   .  •        *  i- 4.4.1 

Necessary       resources.    His  past  history  is  of  little 

for  Judgment  value,  except  insofar  as  it  relates  to  his 
credit  record.  The  fact  that  a  customer  has  gone 
through  bankruptcy  or  was  slow  in  making  payments 
five  years  ago  does  not  affect  his  retail  credit  if  his 
present  character  is  good;  his  whole  business  and 
social  record  are  not  inquired  into,  nor  his  habits  or 
associates.  The  retailer  wants  specific  facts;  the  resi- 
dence of  the  applicant,  his  position  or  source  of  in- 
come, the  extent  of  his  property,  his  present  or  past 
charge  accounts;  such  questions  as  the  amount  of  his 
bank  account  are  considered  legitimate.  In  case  the 
applicant  is  a  married  woman,  these  questions,  of 
course,  refer  to  her  husband. 

This  information  is  derived  from  the  applicant 
himself,  from  outside  sources,  or  both.  Credit  ac- 
counts are  opened  in  one  of  two  ways.  Either  the 
buyer  makes  direct  application  for  credit,  or  he  makes 
a  purchase  and  simply  requests  the  salesperson  to  have 
it  charged.  In  either  case  the  credit  man  bends  his 
efforts  to  making  his  decision  without  recourse  to 
personal  interrogations  Such  a  course  will  bring 
trade,  for  it  is  simply  one  point  in  careful  handling  of 
customers.  Women  especially  have  such  a  terror  of 
these  interviews,  that  the  possibility  of  passing  through 
the  ordeal  will  often  deter  them  from  attempting  to 
open  an  account.  They  seem  to  think  that  all  their 
private  history  and  personal  secrets  will  be  brutally 
exposed  to  the  examination  of  a  cold-blooded  indi- 
vidual who  will  delight  in  prying  into  their  personal 
aflfairs.    A  house,  therefore,  which  obtains  a  reputa- 


J.  W.  McCONNELL  129 

tion  for  not  requiring  personal  examination  will  draw 
these  timid  accounts.  Such  a  course  also  flatters  a 
customer,  for  it  gives  her  the  impression  that  slie  is 
so  well  and  favorably  known  that  she  need  present  no 
credentials. 

When  a  personal  interview  is  absolutely  neces- 
sary, the  credit  man  attempts  to  make  it  as  short  and 
as  impersonal  as  possible.  He  may  obtain  the  In- 
formation desired  in  a  few  direct  questions.  But  if 
the  applicant  seems  sensitive,  he  should  endeavor  to 
draw  out  the  information  he  wants  in  an  indirect 
way;  to  do  this  without  seeming  to  prj'  unnecessarily 
into  an  applicant's  private  affairs,  and  so  hurting  his 
sensibilities,  is  a  delicate  task.  The  credit  man  must 
often  learn  his  facts  in  the  course  of  a  general  con- 
versation, by  inference  from  statements  and  admis- 
sions, and  from  his  own  observation  of  the  applicant. 
The  facts  thus  obtained  are  usually  verified  from  out- 
side sources. 

In  addition  to  this,  outside  sources  for  obtaining 
original  information  are  at  hand.  If  the  applicant  Is 
a  business  man  he  can  be  investigated  through  the 
medium  of  the  mercantile  agencies,  as  if  he  were  buy- 
ing an  invoice  of  goods  from  a  wholesale  house,  and 
all  information  necessary  can  be  thus  acquired.  In 
case  he  is  not  engaged  in  mercantile  pursuits,  the  com- 
mercial agencies  are  often  able  to  afford  the  facts  the 
credit  man  needs.  Their  service  is  becoming  more 
and  more  complete  as  regards  individuals  they  cover, 
and  more  accurate  as  respects  the  information  they 
give.  If  a  man  has  ever  had  any  doubt  cast  upon  his 
credit,  if  he  has  ever  been  sued,  if  an  account  of  his 
has  ever  needed  the  services  of  a  collection  agency,  if 
he  has  any  old  unpaid  bills,  or  if  his  property  is  en- 


130  CREDITS  AND  COLLECTIONS 

cumbered — all  such  facts  they  almost  invariably  have 
on  record. 

The  retail  stores  of  the  large  cities  have  no  organ- 
ized system  of  credit  clearings  or  of  reporting  de- 
linquent customers.  The  only  time  the  store  applies 
to  another  for  information  is  when  an  applicant  gives 
another  store  with  which  he  has  an  account  as  a  ref- 
erence; then  the  latter  store  will  give  the  information 
desired,  more  as  a  favor  to  its  customer,  to  be  sure, 
than  to  the  house  inquiring. 

When  a  buyer  who  has  no  account  requests  goods 
charged,  since  the  clerk  who  approves  all  charge  sales 
will  not  find  him  on  his  list,  the  sale  will  be  passed  up 
to  the  credit  manager.  He  will  attempt  to  pass  on  the 
advisability  of  opening  this  account  without  a  direct 
interview  with  the  buyer,  and  will  set  in  motion  the 
machinery  above  described  for  investigation.  The 
facts  thus  obtained  are  usually  suflScient.  Sometimes 
the  buyer  is  so  well  known  and  of  such  undoubted  in- 
tegrity as  to.  need  no  investigation  at  all.  The  ac- 
count is  opened  and  a  polite  note  sent  to  the  customer, 
assuring  him  that  the  opportunity  of  adding  his  name 
to  the  list  of  "charge  customers"  is  appreciated. 

Even  though  investigation  in  any  case  proves  that 
the  advisability  of  extending  credit  is  a  little  doubt- 
ful, the  retail  credit  man  has  a  much  wider  field  than 
his  wholesale  confrere  for  using  his  ingenuity  in  seek- 
ing a  safe  basis  on  which  to  open  an  account.  Vari- 
ous means  for  securing  and  guaranteeing  or  limiting 
the  account  may  be  devised  to  suit  individual  cases. 

Every  account  has  a  limit  placed  upon  the 
monthly  credit  which  is  to  be  extended  to  the  cus- 
tomer. This,  however,  is  not  a  fixed  line  beyond  which 
there  is  no  advance;  it  is  more  a  means  of  guiding  the 


J.  W.  McCONNELL  131 

work  of  the  employes  of  the  credit  department.  It 
simply  means  that  when  a  customer's  purchases  for 
Keepine  in  ^^^  month  have  reached  this  limit,  fur- 
Touch  With  ther  sales  must  be  submitted  to  the  credit 
Customers  manager  for  approval.  It  is  a  kind  of 
safety-valve  by  which  an  account  is  brought  to  the 
attention  of  the  head  of  the  credit  department  when  it 
has  reached  a  certain  stage.  The  amount  of  the  limit 
may  be  changed  several  times  during  the  same  month, 
depending  on  the  condition  of  the  customer's  account 
and  the  kind  of  purchases  he  is  making. 

The  real  work  of  the  credit  man  is  not  so  much 
in  opening  accounts  as  in  keeping  in  close  touch  with 
them  after  they  are  started  and  making  prompt  col- 
lections. The  hold  of  tlie  retail  store  on  its  charge 
customers  is  much  more  intangible  than  that  of  the 
jobber.  The  merchant  buying  from  the  wholesale 
house  has  assets  in  his  business;  he  must  pay,  or 
confess  insolvency  and  lose  his  busness  reputation;  he 
cannot  move  from  one  community  to  another  with 
ease.  No  such  considerations  weigh  with  the  retail 
buyer;  the  credit  man  must  substitute  for  this  un- 
ceasing watchfulness  over  his  account  and  his  cus- 
tomers themselves. 

In  a  large  house  it  is  absolutely  necessary  that  he 
keep  a  record  of  his  customers.  The  most  convenient 
form  is  a  card  index  arranged  alphabetically,  each 
card  containing  in  concise  form  the  salient  facts  and 
information  regarding  each  customer.  Any  new  in- 
formation secured  is  at  once  entered  on  these  cards, 
so  that  they  are  kept  up  to  date. 

The  credit  man's  second  source  of  information 
regarding  his  open  accounts  are  his  ledger  records. 
With  thousands  of  accounts  on  his  books  it  is  of 


132  CREDITS  AND  COLLECTIONS 

course,  impossible  for  the  credit  man  to  keep  informed 
regarding  the  status  of  all  his  accounts.  He  must  be 
satisfied  if  he  can  keep  in  touch  with  the  more  vital 
accounts — those  which  are  overdue.  This  he  can  do 
most  easily  by  looking  over  those  of  the  statements 
sent  out  by  the  bookkeeping  department  on  the  first 
of  each  month  which  contain  overdue  items.  In  ad- 
dition to  this,  the  credit  man  should  be  notified  the 
moment  an  account  reaches  the  limit;  the  credit 
limit  is  placed  at  the  top  of  the  ledger  sheet  of  each 
customer;  the  bookkeeper,  as  he  enters  the  previous 
day's  sales  each  morning,  can  make  a  memorandum 
of  those  accounts  which  have  reached  or  overrun  the 
limit,  and  place  them  on  the  credit  man's  desk. 

In  collections,  again,  the  credit  man  must  exercise 
tact  and  use  his  knowledge  of  his  customers  and  their 
Tact  in  affairs;  and,  knowing  their  peculiarities 

Making  better  than  anyone  else  in  the  house,  he 

Collections  ^^^  -^^^^  determine  the  general  policy  to 
be  pursued  in  collections  and  the  procedure  in  in- 
dividual cases.  Women,  and  many  men  also,  take 
offense  at  even  a  reminder  of  indebtedness,  classing 
all  such  as  "duns."  They  must  be  treated  very  deli- 
cately, even  though  their  accounts  are  overdue.  It  is 
at  bottom  a  question  of  making  them  think  that  they 
are  paying  when  they  please,  and  yet  so  influencing 
them  that  their  time  of  "paying  when  they  please" 
will  correspond  with  the  time  when  the  house  wants 
them  to  pay.  By  the  use  of  tactful  reminders,  the 
right  kind  of  correspondence,  and  indirect  methods, 
customers  can  be  trained  to  be  prompt  payers.  Some 
customers,  perfectly  good,  pay  only  every  sixty  days 
or  even  quarterly.  Their  wishes  must  be  observed, 
and  one  slip  in  the  way  of  an  insistent  dun  letter  may 


J.  W.  McCONNELL  133 

lose  the  account.  Credit  men  find  that  the  financial 
arrangements  of  husband  and  wife  differ  greatly  in 
different  families.  Some  men  do  not  wish  any  bills 
contracted  by  their  wives  to  come  to  themselves  or 
to  their  oflBces,  but  insist  that  they  go  directly  to 
their  wives;  others  do  not  want  their  wives  to  see 
any  bills,  but  desire  to  have  bills  sent  to  them- 
selves.    Such  wishes  must  be  known  and  observed. 

Sharp  collections  reduce  the  percentage  of  losses 
and  the  expense  of  running  a  business,  and  increase 
sales.  As  the  age  of  a  bill  increases  the  chance  of 
collecting  it  decreases ;  repeated  attempts  at  collection 
often  irritate  a  customer  and  make  him  even  more 
prone  to  put  off  payment.  The  added  expense  comes 
in  two  ways;  in  the  time  and  money  spent  by  the  col- 
lectors and  in  correspondence;  and,  what  is  more 
vital,  in  the  much  greater  amount  of  capital  necessary 
for  the  carrying  of  overdue  accounts.  When  a  house 
has  thousands  of  open  accounts  on  its  books,  run- 
ning into  the  hundreds  of  thousands  in  money,  the 
saving  in  the  interest  on  the  capital  tied  up  in  bills  re- 
ceivable when  they  are  collected  ten  days  instead  of 
sixty  days  after  due,  is  no  inconsiderable  item. 

A  retail  house  has  its  corps  of  collectors  like  a 
wholesale  house,  but  their  method  of  work  Is  wholly 
different.  A  man  engaged  in  business  expects  state- 
ments and  personal  collectors  when  his  account  be- 
comes overdue;  he  doesn't  resent  it.  The  majority 
of  debtors  of  a  retail  house  consider  a  reiterated  de- 
mand for  payment  as  an  affront,  and  a  call  from  a 
collector  as  an  insult.  Nevertheless,  the  retail  mer- 
chant must  look  after  his  collections  even  more 
sharply  than  a  wholesaler,  for  only  in  this  way  can 
he  make  up  for  more  or  less  risky  extensions  of  credit. 


134  CREDITS  AND  COLLECTIONS 

That  prompt  collection  increases  sales  results  from 
the  fact  that  a  customer,  having  a  large  bill  overdue 
at  one  store,  will  transfer  his  patronage  to  another 
establishment  because  of  fear  of  being  refused  fur- 
ther credit  at  the  first  and  a  dislike  of  increasing 
his  account. 

All  possible  moral  suasion  and  peaceable  efforts 
should  be  used  in  collecting  before  resorting  to  more 
strenuous  methods.  When  an  account  reaches  the 
stage,  however,  where  it  is  apparent  that  the  debtor 
is  attempting  to  avoid  his  debt,  and  it  becomes  a 
question  of  getting  payment  in  the  quickest  and 
surest  way,  legal  steps  should  be  taken.  Before  tak- 
ing such  steps  the  credit  man  must  have  made  up  his 
mind  that  it  is  to  his  interest  to  close  the  account  in 
question.  For,  once  he  has  taken  recourse  to  law,  he 
may  as  well  make  up  his  mind  that  the  customer  is 
lost  to  him.  It  is  bad  policy  for  him  to  reopen  an 
account  with  such  a  man,  not  only  because  he  has 
proved  himself  untrustworthy  and  unprofitable,  but 
also  because,  when  a  person  is  sued  by  a  house,  justly 
or  unjustly,  one  can  figure  that  he  will  be  itching  to 
put  that  house  into  a  hole  at  the  first  opportunity. 

The  whole  matter  of  collections,  even  more  than 
that  of  making  credits,  depends  upon  a  store's  class  of 
patrons.  A  high-grade,  wealthy  patronage  needs  an 
entirely  different,  much  more  subtle  and  less  stren- 
uous collection  system  than  customers  who  belong 
to  the  less  wealthy  classes. 


CHAPTER    XI 

CREDITS  AND  COLLECTIONS  IN  AN  INSTALL- 
MENT  HOUSE 

By  E.  F.  KENNEDY 
President,  The  Kennedy  Furniture  Company 

The  merchant  who  sells  on  the  installment  basis 
has  the  advantage  over  the  retailer  in  one  way,  in 
that  he  usually  receives  a  cash  down  payment  for 
part  of  the  invoice  and  has  a  contract  or  mortgage 
of  some  kind  for  the  remainder  which  protects  him 
against  the  loss  of  the  goods,  unless  the  customer 
is  openly  dishonest  and  fraudulent.  On  the  other 
hand,  he  works  at  a  disadvantage  as  compared  with 
the  retailer,  for  he  virtually  cannot  discriminate  as  to 
whom  he  shall  trust.  And  as  installment  man,  he 
must  sell  on  this  basis  to  all  who  offer  themselves 
and  can  show  any  record  at  all.  If  he  refuses  them, 
he  not  only  loses  this  order,  but  very  likely  the  entire 
trade  of  the  customer.  The  retailer,  if  he  does  not 
think  it  advisable  to  extend  credit,  can  often  persuade 
the  applicant  to  pay  cash,  and  thus  keep  his  patron- 
age. The  retailer  can  put  off  granting  credit  for 
months  until  he  has  traded  with  the  customer  and 
knows  his  trustworthiness  from  personal  experience, 
without  giving  serious  offense  or  necessarily  losing  a 
sale  or  a  customer.  If  an  installment  merchant  re- 
fuses credit,  there  is  no  other  alternative  open — the 
sale,  and  probably  the  customer,  is  lost. 

In  granting  credit  to  a  new  customer,  the  credit 
135 


136  CREDITS  AND  COLLECTIONS 

man  of  an  installment  house  must  depend  almost  en- 
tirely on  his  intuitions  and  experience  in  judging 
men.  He  has  three  classes  to  face;  those  who  are 
honest  and  intend  to  pay,  and  who  will  pay ;  those  who 
are  honest  and  of  good  intentions,  but  who  overesti- 
mate their  ability  to  pay  and  eventually  will  fail  to 
pay;  and  those  who  never  intend  to  pay  and  are  sim- 
ply trying  to  obtain  the  goods  under  false  pretenses. 

The  latter  class  is  very  small.  Such  strong 
guards  have  been  placed  around  the  installment  con- 
tract that  fraud  is  difficult  and  dangerous.  The 
great  majority  of  buyers  are  of  good  intentions,  and  a 
credit  man  can  make  no  bigger  mistake  than  to  go  on 
the  assumption  that  all  people  are  dishonest  dead 
beats,  and  that  his  business  is  to  keep  the  house  from 
being  cheated.  This  suspicious  and  pessimistic  atti- 
tude will  hurt  his  work  and  the  trade  of  his  house 
rather  than  help  it.  There  is  no  man  or  woman  so 
proud  and  sensitive  as  the  "poor  but  honest,"  and 
it  is  largely  with  this  class  of  people  that  the  install- 
ment house  deals. 

The  credit  man,  having  the  bill  of  goods  ordered 
and  the  buyer  himself  before  him,  must  decide  almost 
Facts  on  ^°   ^^^  spot,    from   his    impressions    of 

Which  Credit  the  individual  and  the  information  he 
is  Based  obtains    from    his    direct     questioning, 

whether  to  approve  the  sale  and  allow  the  credit. 
The  installment  house  is  not  now,  as  formerly, 
in  the  position  of  one  granting  favors,  and  so  per- 
mitted to  ask  any  questions,  to  dictate  any  terms, 
and  generally  tread  all  over  the  sensibilities  of  the 
buyer.  There  is  now  too  much  competition  in  this 
line  of  business.  Buying  on  installments  no  longer 
reflects  any  discredit  on  the  buyer  as  it  once  did; 


E.  F.  KENNEDY  137 

he  is  quite  as  likely  as  not  to  have  money  invested 
or  in  a  savings  account  which  he  does  not  wish  to 
draw  upon.  He  has  a  choice  between  houses,  and  he 
usually  bases  his  selection  on  their  methods  of  in- 
quiry and  their  terms;  he  has  consequently  become 
more  independent  and  sensitive,  and  he  must  be 
treated  accordingly. 

The  credit  man  must,  of  course,  secure  certain 
information  relative  to  a  customer's  stability  and  cir- 
cumstances, preliminary  to  approving  a  sale.  The 
greater  part  of  this  information  he  must  get  directly 
from  the  customer  himself.  And  just  because  this 
customer  will  be  sensitive,  the  credit  man  should 
learn  as  much  as  possible  by  indirect  questioning  in 
the  course  of  a  pleasant,  rambling  conversation;  he 
must  lead  up  to  unconscious  admissions  and  side-re- 
marks and  implications.  The  usual  information  de- 
sired is:  the  reason  the  customer  is  buying  on  install- 
ments; the  source  of  his  income,  from  which  the  in- 
stallments are  to  be  paid;  where  the  person,  husband, 
father,  or  whoever  is  responsible  for  the  payments, 
works;  the  general  circumstances  of  the  customer  as 
to  property  owned,  bank  account,  and  so  on. 

If  the  credit  man  starts .  on  his  search  for  this 
information  from  an  attitude  of  suspicion,  he  is 
bound  to  antagonize  the  customer.  He  must  rather 
appear  sympathetic,  obliging,  as  if  all  were  a  mere 
formality  and  unnecessary  for  the  extension  of  credit 
in  this  case.  Pleasantness,  an  appearance  and  tone 
of  friendliness,  a  sincere  and  apparent  desire  to  be 
helpful  and  accommodating,  go  a  long  way  in  any 
kind  of  business  activity,  but  nowhere  are  they  more 
to  be  emphasized  than  here. 

The  credit  man  must  virtually  make  his  decisions 


138  CREDITS  AND  COLLECTIONS       • 

on  the  spur  of  the  moment,  judging  of  the  truth  of  the 
facts  given  him  from  general  appearances  and  his  in- 
tangible impressions.  He  can,  and  very  often  does, 
investigate  the  facts  he  has  obtained  before  the  goods 
are  delivered,  but  the  most  he  can  do  is  to  find  out 
whether  the  place  of  employment  given  is  correct, 
and  even  this  he  must  do  secretly,  for  the  information 
is  usually  given  confidentially.  A  customer  usually 
does  not  wish  his  employer  or  anyone  else  to  know 
that  he  is  buying  in  this  manner,  and  consequently 
verification  of  the  facts  he  gives  cannot  be  made 
openly.  In  this  respect  the  wishes  of  the  customer 
must  be  observed  if  his  account  is  to  be  kept  by  the 
house.  The  credit  man  must  judge  of  the  customer's 
honesty  from  his  general  appearance  and  attitude;  he 
must  determine  whether  the  different  items  of  in- 
formation he  gives  agree,  and  whether  the  goods 
bought,  both  as  to  the  size  of  the  order  and  the  qual- 
ity of  the  goods,  seem  to  be  in  accord  with  the  ap- 
parent circumstances  of  the  customer. 

The  credit  man  ought,  as  should  any  business 
man,  always  to  be  on  the  lookout  for  knaves.  They  are 
either  very  hard  or  \ery  easy  to  recognize,  for  either 
they  are  clumsy  and  can  be  detected  at  first  sight 
from  their  appearance  or  from  the  apparent  invention 
of  the  information  they  give,  or  they  are  very  clever 
and  put  up  an  almost  undetectable  front  The  only 
way  to  cope  with  the  latter  is  to  make  the  contract 
of  sale  so  binding,  and  the  follow-up  and  collection 
system  so  stringent,  that  they  cannot  get  an  oppor- 
tunity to  carry  out  their  fraudulent  designs. 

The  hardest  task  of  the  credit  man  is  to  detect 
such  among  the  honest  and  good-intentioned  people 
as  are  evidently  over-reaching  their  resources  in  their 


E.  F.  KENNEDY  139 

purchases.  To  discover  such  people  requires  deep 
insight  into  character  and  a  clever  analysis  of  the 
information  under  review.  Long  experience  with  in- 
stallment sales  and  accounts  will  enable  him  to  esti- 
mate with  remarkable  accuracy  the  approximate  pay- 
ing value  of  a  given  income  or  certain  resources. 
Even  when  he  has  detected  such  a  person,  however, 
a  task  equally  hard  is  to  handle  the  customer  in  such 
a  way  as  to  make  a  sale  and  still  be  safe.  If  his 
judgment  places  a  prospective  buyer  in  this  class,  the 
credit  man  probably  will  not  wish  to  wholly  turn  him 
down;  he  may  come  to  be  a  good  customer.  The 
credit  man  must  seek  to  bring  the  order  to  a  safe 
basis. 

The  collection  department  of  any  business  house 
should  be  closely  allied  to  the  credit  department,  but 
Importance  ^°  ^®  business  is  this  so  necessary,  and 
of  Prompt  in  fact  indispensable,  as  in  an  install- 
CoUections  ment  house.  A  vigilant,  sharp,  intel- 
ligent collection  policy  and  system  will  do  much  more 
to  reduce  the  percentage  of  foreclosures  and  bad  ac- 
counts than  the  best  credit  making,  for  not  only  can 
a  good  collection  department  save  a  doubtful  account, 
but  a  poor  one  can  lose  many  good  bills. 

Even  more  important  than  this  is  the  fact  that 
prompt  collections  increase  the  volume  of  sales.  A' 
credit  man  who  knows  his  collections  are  being  well 
taken  care  of  can  make  his  terms  a  little  more  liberal, 
and  can  thus  accept  more  orders  and  will  in  the  end 
draw  more  trade.  Then,  too,  a  customer  who  gets  his 
account  paid  up  promptly  will  come  back  for  a  new 
purchase  sooner  and  he  will  be  more  apt  to  come  back 
anyway,  for  prompt  payments  are  the  easiest  to  make 


140  CREDITS  AND  COLLECTIONS 

and  cause  the  least  trouble  and  friction  between 
house  and  customer. 

Each  account  should  be  carefully  watched,  not  a 
day's  delay  in  payment  allowed  without  the  reason 
being  known,  and  the  circumstances  and  movements 
of  customers  zealously  followed.  It  is  the  regular, 
permanent  customer  who  brings  the  profit,  and  the 
regular  customer  is  the  one  with  whom  the  house 
never  has  the  least  trouble;  customers  can  be  trained 
to  pay  promptly  as  they  can  be  encouraged  to  be  dila- 
tory. The  longer  a  payment  is  put  off,  the  heavier 
the  burden  becomes.  The  point,  that  the  older  a 
bill  is  the  harder  it  is  to  collect,  is  especially  well 
taken  in  case  of  installment  accounts,  for  delay  on 
one  payment  is  going  to  throw  all  those  that  follow 
out  of  gear  and  make  their  collection  just  so  much 
more  difficult. 

Detailed  records  should  be  kept  of  each  account, 
not  only  for  the  sake  of  the  bookkeeping  department, 
but  even  more  for  the  use  of  the  credit  man  when  an 
old  customer  asks  credit  for  a  new  purchase.  The 
credit  man  can  call  for  his  previous  records,  and  can 
determine  at  once  whether  he  paid  willingly  and 
promptly,  or  whether  he  was  slow  and  cost  more  in 
expense  of  collecting  his  bill  than  there  was  profit 
in  his  order.  In  such  a  case  these  old  records  are  the 
most  valuable  source  of  information  that  the  credit 
man  can  have. 

Foreclosures  should  be  a  last  resort.  Under  no 
circumstances  does  it  pay  to  force  a  seizure  of  the 
goods  sold  when  there  is  the  least  possibility  of  peace- 
able settlement.  It  is  much  better  to  extend  the 
mortgage,  grant  more  time,  coax  the  customer  along 
as   far  jas   possible.    Foreclosing  dnvariably   results 


E.  F.  KENNEDY  141 

In  the  loss  of  the  customer,  is  liable  to  give  the  house 
a  bad  reputation,  whether  justly  or  unjustly,  and  is 
never  profitable.  The  goods  returned  are  always 
worn  and  must  be  resold  at  secondhand  prices.  Only, 
therefore,  when  all  possible  peaceful  efforts  to  secure 
payment  have  failed  should  recourse  to  legal  steps  be 
had.  The  credit  and  collection  department  may  have 
"no  profit  on  account"  chalked  up  against  it,  but  any 
number  of  these  show  better  management  than  a  row 
of  foreclosures. 


CHAPTEK    XII 

CREDITS     AND     COLLECTIONS     IN     FOREIGN 
TRADE 

By  JOHN  E.  GARDIN 

Manager,  Foreign  Exchange  Department, 

national  City  Bank,  New  York 

The  American  merchant  who  seeks  a  market  for 
his  wares  in  foreign  countries  is  confronted  with  the 
fact  that  he  knows  very  little  about  his  customers, 
nor  does  he  know,  as  a  rule,  anything  about  the  cus- 
toms prevailing  in  the  commercial  marts  abroad. 
This  lack  of  knowledge  not  only  leads  to  monetary 
loss,  but  also  to  loss  of  prestige  in  consequence  of 
the  matter  not  being  handled  according  to  his  cus- 
tomer's views,  thus  piling  up  difficulties  at  the  outset 
of  his  career  as  a  factor  in  foreign  markets.  Chau- 
vinism is  rampant  in  all  countries,  and  the  foreigner 
entertains  the  same  view  as  the  American  does  in  a 
great  many  respects,  that  there  is  nothing  good  to 
come  from  any  country  but  his  own. 

It  is  only  by  dint  of  the  hardest  kind  of  work, 
the  untiring  efforts  of  our  consular  officers  abroad 
and  the  ceaseless  energy  of  the  pioneers  in  this  coun- 
try in  foreign  trade,  that  America  has  been  at  last 
able  to  bring  before  a  consuming  public  in  foreign 
lands  the  excellence  of  its  goods.  To  what  extent 
American  products  are  in  demand  on  the  other  side  of 
the  water  has  been  fully  demonstrated.  The  fame  of 
the  American  producer  is  now  well  established,  and  the 

142 


JOHN  E.  GARDIN  143 

great  corporations  who  are  seeking  an  outlet  for  their 
surplus  wares  have  no  difficulty  in  selling  as  much 
of  their  product  as  they  desire,  and  the  only  question 
is  that  of  price. 

However,  this  was  not  accomplished  without  the 
greatest  labor  on  the  part  of  such  corporations 
through  the  organization  of  agencies  in  all  the  prin- 
cipal cities  of  Europe  and  elsewhere,  by  the  organiza- 
tion even  of  banks  to  handle  the  financial  end  of  their 
business.  The  result  is  that  their  sales  abroad  now 
run  into  hundreds  and  thousands  of  millions  of  dol- 
lars annually. 

The  ordinary  merchant,  in  the  first  place,  has  not 
the  means  at  his  command  to  perfect  an  organization 
which  will  protect  his  interests  at  every  stage  of  the 
game,  but  must  depend  upon  his  own  individual  ef- 
forts, aided  by  integrity  and  honesty,  in  dealing  with 
his  clients.  In  this  respect  he  is  ably  assisted  by 
the  various  banking  institutions  of  importance  in  this 
country,  who  all  have  large  and  extended  foreign  con- 
nections. 

By  means  of  his  banking  connections  at  home  he 
is  able  to  determine  who  is  worthy  of  credit  and  who 

Information  ^^  °®*-  ^*  ^^  *^^  purpose  of  this  article 
in  Foreign  to  describe,  as  far  as  possible,  the  es- 
Credits  sential     requisites     for    the     successful 

handling  of  credits  in  foreign  trade. 

Advantage  is  taken  frequently  by  unscrupulous 
concerns  abroad  to  work  schemes  upon  the  American 
mercantile  community,  and  these  are  often  successful. 
Particularly  in  Holland  there  is  a  well  organized 
clique  of  swindlers,  who,  on  the  basis  of  advertise- 
ments in  trade  journals,  send  in  orders  for  goods  and, 
upon  receiving  same,  disappear  from  the  scene  alto- 


144  CREDITS  AND  COLLECTIONS 

gether,  only  to  reappear  under  a  different  name  per- 
haps in  a  different  city.  This  gang  has  for  a  num- 
ber of  years  successfully  exploited  the  American  com- 
mercial community.  The  same  thing  is  going  on  in 
other  countries,  but  not  to  the  same  extent.  It  there- 
fore behooves  the  American  exporter  to  have  great 
care  whom  he  is  dealing  with;  and  he  can  do  so,  for 
he  has  abundant  opportunity  before  shipping  goods 
to  inform  himself  in  regard  to  the  solvency  of  any 
would-be  clients. 

England  has  an  exceedingly  elaborate  and  reli- 
able system  of  commercial  reports  in  the  well  tabu- 
lated returns  of  the  commercial  agency  of  Seyds,  com- 
monly known  as  Seyd's  Reports.  In  these  reports 
every  commercial  house  of  any  standing  whatever  is 
quoted  in  four  different  columns,  giving  trade  extent, 
monetary  credit  and  other  information  which  serves 
as  a  guide  to  the  exporter.  These  reports  are  the 
most  reliable  of  any  published  in  any  country,  our 
own  not  excepted.  Seyd's  Reports  alone  constitute 
a  library,  and  while  they  are  expensive,  to  a  large 
commercial  house  doing  an  important  business  with 
England  they  are  an  absolute  necessity.  The  small 
merchant  need  not  go  to  this  expense  for  gaining 
the  benefit  of  this  elaborate  system,  as  every  banking 
institution  of  any  importance  doing  a  foreign  business 
has  this  work  in  its  library,  and,  true  to  the  maxim 
of  the  banking  world,  that  it  is  the  intermediary  of 
commerce  and  trade,  they  stand  always  willing  to 
allow  the  use  of  them  to  their  clients. 

In  addition  to  these  reports,  every  large  banking 
institution  has  files  of  information  concerning  the 
standing  of  practically  every  important  business  house 
in  the  world,  and  the  benefit  of  years  of  labor  in  this 


JOHN  E.  GARDIN  145 

respect  is  placed  at  the  disposal  of  business  men  at 
the  expense  of  perhaps  a  two-cent  postage  stamp. 
Should,  contrary  to  expectation,  the  files  be  incom- 
plete to  the  extent  of  just  the  one  party  that  is  in- 
quired about,  this  deficiency  can  be  remedied  in- 
stantaneously at  a  slight  cost  and  delay  by  making 
inquiry  through  its  connections  abroad  as  to  the 
standing  of  the  party  desired.  In  the  event  of  an  im- 
portant dftal  this  inquiry  can  be  made  by  cable,  so 
that  the  reply  would  be  to  hand  within  a  few  hours. 

The  most  reliable  information  concerning  foreign 
parties,  of  course,  is  to  be  obtained  only  through  for- 
Obtainable  ^^^°  bankers.  But  the  foreign  banker 
Only  Through  declines,  and  with  good  reason,  to  im- 
Banks  p^^.^   ^^^^   information    concerning   com- 

mercial houses  in  his  locality  to  any  but  banks  and 
bankers  with  whom  he  is  in  connection.  It  therefore 
behooves  the  merchant  who  desires  information  to 
apply  to  his  bank  therefor,  which  in  its  turn  will  send 
the  matter  on  to  its  proper  destination,  with  the  result 
that  an  answer  will  be  forthcoming  as  fast  as  the 
mail  or  telegraph  can  bring  it. 

My  advice,  therefore,  is:  do  not  hesitate  to  call 
upon  your  banker.  He  is  at  all  times  ready  to  aid 
commerce  in  all  its  branches  and  does  so  most  effi- 
ciently. Any  reason  to  the  effect  that  doing  this 
service  brings  no  returns  to  him  is  a  fallacious  one. 
It  is  true  it  brings  no  immediate  returns;  quite  to  the 
contrary,  it  costs  him  money,  in  the  time  of  his  em- 
ployes, in  postages,  and  so  on.  But  the  advantage  is 
a  collateral  one  to  the  extent  that  it  furthers  the 
business,  and  if  the  information  is  satisfactory  and 
leads  to  engagements,  the  banker  sooner  or  later  is 
sure  to  get  his  share.    This  matter  of  procuring  in- 


146  CREDITS  AND  COLLECTIONS 

formation  for  his  friends  is  simply  one  of  casting 
bread  upon  the  waters.  The  returns  will  surely  come 
some  time  or  another.  Consequently  the  merchant  need 
not  hesitate  to  employ  his  bankers  in  this  respect 
with  perfect  freedom,  and  may  rest  assured  that  the 
service  is  not  grudgingly  rendered. 

On  the  continent  there  are  well-established 
bureaus  of  information  which  impart  what  informa- 
tion is  obtainable  concerning  the  standing  of  parties 
for  a  certain  fee,  which  as  a  rule  is  rather  a  small 
one;  still  these  reports,  as  a  general  thing,  are  re- 
liable and  are  an  indication  anyway  as  to  whether 
the  party  with  whom  the  merchant  in  thi&  country 
intends  doing  business  is  reputable  or  not.  Never- 
theless, the  information  from  the  banker,  as  a  supple- 
mentary matter,  is  absolutely  essential,  inasmuch  as 
the  private  institution  very  reluctantly  or  in  fact 
rarely  ever  gives  information  that  is  bad,  owing  to 
the  stringent   libel  laws  in  foreign  lands. 

Quite  frequently  the  argument  is  advanced: 
"What  do  I  care  what  the  standing  of  the  parties 
abroad  is?  I  can  arrange  matters  in  such  a  way  that 
they  cannot  get  hold  of  the  goods  without  paying  my 
bill."  While  this  is  true  in  a  great  many  cases, 
still  at  the  same  time,  it  is  a  pretty  risky  way  of  doing 
business.  The  merchant  forwards  his  goods,  perhaps 
consigned  to  his  own  order,  attaches  his  bills  of  lading, 
insurance  certificate  and  other  documents  that  are 
required  to  a  draft  which  is  made  upon  the  pur- 
chaser and  deposits  this  with  his  banker,  secure  in 
the  feeling  that  his  goods  will  not  be  delivered  to  the 
purchaser  unless  the  quid  pro  quo  is  duly  returned. 
Should  it  prove  to  be  the  case  that  he  is  not  reliable 
and  the  goods  are  withheld,  the  expense  of  taking 


JOHN  E.  GARDIN  147 

care  of  the  merchandise  on  arrival,  the  vexatious 
delays  and  annoyances  and  the  sacrifice  that  he  will 
have  to  submit  to  in  disposing  of  the  goods,  unless 
he  desires  to  throw  good  money  after  the  bad  in 
having  the  goods  returned,  will  eat  up  his  profits. 
How  much  easier  to  investigate  the  reliability  of  the 
customer  before  filling  the  order. 

Granted  now  that  information  shows  a  foreign 
buyer  to  be  reliable  and  satisfactory',  what  methods 
How  Goods      ^^^  open  to  the  credit  man  for  making 
Should  Be        his  collections?    Three  courses  are  open 
Shipped  ^^  jjjjjj.  j)i.aft  on  the  buyer  with  ship- 

ping documents  attached;  draft  on  a  bank  in  which 
the  buyer  has  a  deposit  or  credit,  and  a  "clean"  draft. 

The  first  method  is  the  most  common,  and  is  the 
safest,  considering  its  simplicity.  When  goods  are 
shipped  to  the  buyer  in  a  foreign  country,  the  bill 
of  lading  and  other  shipping  documents  which  he 
requires  before  the  goods  can  be  delivered  to  him 
by  the  transportation  company  are  attached  to  a 
draft.  These  shipping  documents  consist  of  bills  of  lad- 
ing, and  insurance  certificates,  in  the  case  of  ordinary 
manufactured  goods;  documents,  such  as  inspection 
certificates,  are  required  where  cereals  are  shipped; 
in  shipments  of  meat  products,  inspection  certificates, 
generally  of  two  kinds,  are  required — board  of  trade 
certificates  of  inspection,  and  United  States  govern- 
ment microscopical  certificates;  in  shipments  to 
some  countries  where  a  differential  tariff  is  in  vogue, 
certificates  of  origin  are  required. 

The  seller  sells  this  draft  with  document  attached 
to  his  local  bank,  and  is  paid  for  it  by  check  or  by  a 
credit  to  his  account.  The  bank  takes  no  risk,  for, 
even  though  the  buyer  does  not  pay,  it  has  possession 


148  CREDITS  AND  COLLECTIONS 

of  the  goods,  and  can  even  hold  the  seller  for  the 
amount.  The  banker  forwards  the  draft  to  his  cor- 
respondent abroad  in  the  locality  of  the  buyer  for 
collection.  The  buyer  cannot  obtain  the  goods  until 
he  honors  the  draft. 

Usually  the  goods  are  sold  on  time,  the  drafts 
running  for  sixty  or  ninety  days.  In  order  to  enable 
•the  purchaser  to  obtain  possession  of  the  goods  In 
the  event  of  a  sale,  or  if  they  are  of  a  perishable 
nature,  prior  to  the  maturity  of  the  draft,  a  pro- 
vision is  made  to  the  effect  that  should  it  be  desired 
the  purchaser  can  withdraw  the  goods  upon  payment 
of  the  draft  under  a  rebate  of  interest  at  a  certain 
percentage — on  the  continent  generally  at  the  bank 
rate,  the  oflScial  rate  of  discount  of  the  state  bank 
of  the  country. 

Even  with  this  seemingly  safe  method,  the  ship- 
per should  exercise  every  precaution,  for  it  does  not 
always  protect  him.  The  goods  themselves  should 
never  bear  any  mark  or  address  by  which  the  con- 
signee could  in  any  way  prove  they  were  intended 
for  him,  and  thus  claim  them  in  the  absence  of  the 
bill  of  lading,  as  quite  frequently  happens  when  the 
merchandise  arrives  at  destination  before  the  draft  is 
presented.  The  transportation  company's  agent  is 
almost  always  under  the  influence  of  local  merchants, 
and  his  standing  in  the  community  in  a  great  measure 
depends  upon  their  good  will;  hence  it  can  be  readily 
seen  when  it  comes  to  favoring  anyone  where  there 
is  the  slightest  ambiguity  in  the  shipping  instruc- 
tions, it  certainly  will  not  be  the  foreign  shipper. 
If  the  packages  of  goods  have  to  be  marked,  it  should 
be  with  the  name  or  initials  of  the  shipper,  and  the 
bills  of  lading  themselves  should  always  read  that  the 


JOHN  E.  GARDIN  149 

goods  are  deliverable  only  to  the  order  of  the  shipper. 
These  remarks  apply  chiefly  to  remote  points,  as 
the  principal  European  countries  are  subject  to  well- 
established  rules  and  regulations;  but  notwithstand- 
ing this,  considerable  laxity  is  the  order  of  the  day, 
and  it  behooves  a  shipper  to  be  as  technical  as  pos- 
sible, as  it  is  always  on  technical  grounds  that  the 
agents  of  transportation  companies  claim  immunity. 

The  second  method  of  obtaining  payment  for 
goods  is  used  when  the  consignee  is  not  known  to  the 
Plan  Which  shipper  and  the  latter  does  not  wish  to 
Involves  No  take  the  risk  of  the  expense  of  having  the 
goods  returned  to  him  in  case  draft  is 
not  honored.  The  buyer  then  makes  a  deposit  with 
some  foreign  bank,  or,  if  he  be  favorably  known,  gets 
a  credit  for  a  certain  length  of  time.  The  bank 
writes  to  the  seller — and  often  also  to  the  seller's 
bank — stating  that  the  seller  can  draw  on  the  buyer 
at  this  bank  for  a  certain  length  of  time  up  to  a 
specified  amount,  with  proper  documents  showing 
that  goods  have  been  shipped  attached  to  the  draft. 
The  seller  presents  this  letter  to  his  bank,  which  takes 
up  his  draft  with  papers  attached  and  makes  collec- 
tion from  the  foreign  bank.  In  this  case  the  whole 
risk  lies  with  the  foreign  bank. 

This  method  is  generally  used  in  trade  with  South 
America  and  countries  having  poor  banking  facilities 
and  poorer  credit.  Deposits  are  usually  made  or 
credit  obtained  by  the  buyer  in  a  London  bank 
through  which  drafts  can  most  easily  and  safely  be 
drawn. 

Making  a  "clean"  draft  on  a  customer  is  the 
third  method  open  to  the  seller.  This  is  identical  with 
drawing  sight  draft  on  a  domestic  debtor.  The  goods 


150  CREDITS  AXD  COLLECTIONS 

are  shipped  to  the  address  of  the  buyer  without  at- 
tachments. When  the  bill  falls  due,  the  seller  draws 
on  the  buyer  for  the  amount  of  the  shipment  through 
his  local  bank,  which  in  turn  collects  through  its 
foreign  correspondent.  In  this  case  the  seller  bears 
all  the  risk.  It  is  used  only  in  selling  to  accredited 
foreign  agents  or  to  houses  whose  credit  is  beyond 
suspicion. 

The  principles  laid  down  here  have  necessarily 
been  most  general.  The  credit  man  cannot  conduct 
his  foreign  trade  in  the  way  that  he  handles  his 
domestic  business.  He  must,  in  the  first  place,  exer- 
cise the  utmost  care  in  the  details.  He  must  handle 
his  trade  with  each  country  differently,  according 
to  its  laws  and  customs  and  its  banking  facilities  and 
standards  of  commercial  integrity. 


CHAPTER  XIII 

A  SYSTEM  FOR  CONDUCTING  THE  CREDITS  OP 
A  WHOLESALE  HOUSE. 

By  F.  E.  FRENCH 
Credit  Manager,  J.  V.  Farwell  db  Company 

The  system  outlined  in  this  article  is  the  out- 
growth of  the  experience  of  one  of  the  oldest  and 
largest  dry  goods  houses  in  the  United  States,  and, 
having  been  in  the  course  of  development  for  decades, 
is  not  the  production  of  one  man,  but  the  result  of 
the  work  of  many  men,  modified  by  frequent  changes 
in  business  conditions. 

One  feature  of  this  great  system  which  may  seem 
unique  because  it  may  not  do  in  a  new  business,  or 
for  a  system  just  established,  is  that  all  orders  do 
not  necessarily  pass  the  inspection  of  the  credit  de- 
partment. The  principle  observed  in  this  feature  is 
that,  inasmuch  as  75  per  cent  of  desirable  merchants 
discount  all  purchases,  and  are  perfectly  good  for 
lines  of  credit  commensurate  with  the  amount  of 
^  capital  employed  in  their  business,  it  is  unnecessary 
for  these  accounts  to  be  watched  carefully  by  the 
credit  office,  but  only  accounts  concerning  which 
there  is  the  least  doubt,  or  upon  which  there  is  the 
least  stain,  require  the  observing  eye  of  the  credit 
manager  upon  them.  This  does  not  mean  that  all 
accounts  should  not  be  periodically  reviewed  and 
revised  by  the  credit  man,  nor  do  the  words  "doubt- 

151 


152  CREDITS  AND  COLLECTIONS 

ful"  or  "stain"  refer  only  to  large  factors,  but  to  the 
slightest  deviations  from  the  straight  and  narrow 
path  of  business  integrity.  By  eliminating  in  a  meas- 
ure such  desirable,  discounting  accounts,  the  credit 
department  is  not  only  saved  a  great  deal  of  unneces- 
sary work,  but  is  given  the  time  to  observe  more 
closely  the  accounts  which  need  watching. 

All  mail  for  the  house  is  received  anl  opened  in 
the  cashier's  department;  only  remittance  letters  and 
money,  however,  are  retained  in  this  department.  The 
balance  of  the  mail,  including  orders,  is  immediately 
sent  to  the  credit  department,  where  it  is  separated. 
The  orders,  being  the  most  important  feature,  are 
promptly  distributed  by  clerks  to  the  bookkeeper's  de- 
partment, where  they  are  separated  by  the  various 
bookkeepers  according  to  the  desirability  of  the  cus- 
tomer. The  orders  from  those  whose  accounts  are 
in  good  condition  and  who  have  liberal  lines  of  credit 
(according  to  characters  noted  on  each  account)  are 
turned  over  to  the  salesmen,  after  having  the  time 
received  stamped  upon  them,  without  going  to  the 
credit  oflBce.  Upon  all  doubtful  and  new  accounts 
there  is  a  slip  placed  showing  the  condition  of  the 
account  and  line  of  credit.  These  orders  only  are  re- 
ferred to  the  credit  oflSce. 

It  may  be  well  here  to  follow  a  new  order  through' 
to  its  shipment: 

In  the  first  place,  there  should  be  as  little  delay 
as  possible  in  the  filling  of  new  orders.  Promptness 
The  Course  ^°  executing  the  first  order  disposes  the 
of  an  merchant  to  repeat  his  orders,  thereby 

Order  increasing  the  account.    A   large   per- 

centage of  orders  can  be  turned  over  to  the  sales  de- 


F.  E.  FRENCH  153 

partment,  upon  the  high  rating  of  the  merchant  in  the 
various  mercantile  agency  books,  while  the  usual 
investigation  can  be  made  later.  If,  however,  the 
book  rating  is  in  the  least  unsatisfactory,  the  order  is 
retained  until  special  reports  are  obtained,  and  if  such 
information  is  in  the  least  conflicting  or  unfavorable 
the  order  is  still  retained  until  all  references  and  re- 
plies to  inquiries  from  correspondents  are  received. 

If  the  volume  of  information  is  not  altogether 
satisfactory,  the  customer  is  written  direct  for  a  state- 
ment of  his  financial  affairs,  a  guarantee  covering  his 
purchases,  or  a  remittance  covering  the  amount  of  the 
order.  Inasmuch  as  a  large  percentage  of  orders  are 
now  taken  by  traveling  salesmen,  several  months 
prior  to  date  of  shipment,  and,  if  from  a  new  cus- 
tomer, are  accompanied  with  report  blanks  giving 
the  customer's  references  as  well  as  the  salesman's 
impressions,  the  credit  department  has  ample  time  in 
which  to  make  the  investigation  before  the  date  of 
shipment.  But  in  order  that  no  mistakes  may  be 
made  on  account  of  filling  orders  which  will  not  be 
shipped  promptly,  a  memorandum  of  the  estimated 
amount  of  all  orders  for  future  shipment  is  sent  to 
the  credit  department  just  prior  to  the  filling  of  such 
orders.  In  this  way  the  house  will  not  be  put  to  the 
expense  of  filling  the  order  unless  the  goods  are  to 
be  shipped. 

When  a  new  account  has  been  passed  upon  and 
approved,  a  special  sheet  is  made  for  it  by  the  stenog- 
rapher (this  house  uses  the  loose-leaf  ledger  system) 
and  upon  this  sheet  is  inserted,  in  characters,  the 
classification  and  line  of  credit,  as  well  as  terms  and 
name  of  the  general  salesman.    The  classiflcatioii  in- 


154  CREDITS   AND   COLLECTIONS 

dicates  the  desirability  of  the  account.  For  the 
benefit  of  the  traveling  salesman,  this  classification 
is  inserted  in  the  road  salesman's  credit  guide,  which 
will  be  hereafter  mentioned.  The  line  of  credit  is 
the  amount  of  credit  given  by  the  credit  manager, 
based  upon  information  he  has  received,  the  character 
and  general  condition  of  the  customer,  how  much  con- 
fidence can  be  placed  in  him,  and  so  on.  If  a  cus- 
tomer's business  is  in  a  good  healthy  condition  and 
has  a  capital  of  |10,000,  all  in  his  business,  he  is  en- 
titled to  a  given  line  of  credit,  although  this  line  of 
credit  is  often  increased,  according  to  the  extent  to 
which  he  confines  his  purchases  to  the  company,  and 
the  promptness  with  which  he  meets  his  obligations. 
This  increased  line  is  usually  determined  by  the 
amount  of  business  he  is  doing,  and  similar  considera- 
tions. A  customer  with  a  stock  of  $10,000,  and  doing 
a  business  of  |30,000,  is  entitled  to  a  larger  line  of 
credit  than  a  customer  with  the  same  amount  of 
capital  and  doing  a  business  of  only  |15,000  to  $20,- 
000.  Statistics  show  that  if  in  this  line  of  business 
a  merchant  does  not  turn  his  stock  at  least  twice  an- 
nually, he  is  not  making  any  money. 

Using  the  original  ledgers  instead  of  collection 
books  is  preferable,  in  that  the  condition  of  the  cus- 
rpj^g  tomer's  account  may  be  quickly  noted. 

Conduct  of  together  with  payments,  so  that  the 
Collections  amount  past  due  may  be  treated  accord- 
ingly; in  fact,  payments,  slow  or  prompt,  are  the  best 
indicators  of  a  customer's  condition.  Every  ten  days 
the  credit  manager  receives  from  the  bookkeeper  all 
ledgers,  with  slips  projecting  where  there  is  an 
amount  past  due.    This  keeps  the  credit  man  in  the 


F.  E.  FRENCH  155 

closest  touch  with  his  customers  and  gives  him  a 
knowledge  of  their  condition  which  cannot  be  ob- 
tained in  any  other  way.  It  is  often  said  in  credit 
circles  that  a  strenuous  collection  department  ob- 
viates the  necessity  for  a  particularly  able  credit  de- 
partment. It  can  be  just  as  positively  asserted  that 
an  able  credit  department  avoids  the  necessity  for  an 
extremely  capable  collection  department.  It  is  to 
the  latter  idea  that  this  system  leans,  although  col- 
lections are  by  no  means  neglected.  Good  judgment 
in  the  beginning  of  a  credit  transaction  obviates  the 
necessity  of  receiving  an  uncollectable  "judgment" 
later  on. 

Now  let  us  take  up  an  order  from  an  old  cus- 
tomer, which  has  been  received  by  the  bookkeeping 
department.  In  the  first  place,  the  bookkeeper  refers 
to  the  ledger.  If  there  is  nothing  past  due  and  the 
indebtedness  is  within  the  line  of  credit  noted  in  the 
ledger,  the  order  is  immediately  sent  to  the  general 
salesman  to  be  filled.  After  it  is  filled,  however,  and 
ready  for  shipment,  a  shipping  ticket  is  sent  to  the 
credit  department  for  its  O.  K.  In  this  way,  no  order 
really  goes  out  of  the  house  without  coming  under  the 
eyes  of  the  credit  manager.  In  case  an  order  is  re- 
ceived from  a  customer  whose  account  is  not  in  a  sat- 
isfactory condition  or  whose  rating  is  below  the  rank 
which  entitles  him  to  be  called  good,  or  which  is  too 
large  for  the  bookkeeping  department  to  pass  upon 
on  its  own  responsibility,  then  a  ticket  is  attached 
by  the  bookkeeper,  upon  which  is  noted  the  condition 
of  the  account,  last  payment,  line  of  credit,  and  so 
on,  in  order  that  the  credit  manager  may  decide 
promptly  as  to  whether  or  not  the  order  shall  be 


156  CREDITS   AND   COLLECTIONS 

filled.  The  order  is  then  referred  to  the  credit  man- 
ager for  approval.  Often,  in  cases  of  this  kind,  new 
information  and  a  new  financial  statement  are  neces- 
sary. 

A  revision  of  credit  lines  on  all  customers  is 
made  periodically  and  the  lines  are  raised  or  lowered, 
How  according  to  changes  of  the  customer's 

Information  commercial  rating  and  his  promptness 
Is  Stored        ^^  meeting  his  obligations. 

All  credit  information  is  filed  in  separate  en- 
velopes, on  which  is  written  a  brief  synopsis  of  the 
customer's  condition,  line  of  credit  and  other  general 
information,  to  avoid  the  necessity  of  the  credit  man 
going  through  the  entire  mass  of  information. 

Each  of  the  traveling  salesmen  for  this  company 
is  furnished  with  a  traveler's  credit  guide.  This  has 
been  found  indispensable,  for  it  not  only  saves  an 
enormous  annual  expense  to  the  company,  but  the 
time  of  the  traveling  salesman.  This  guide  is  for  the 
purpose  of  keeping  each  salesman  thoroughly  posted 
as  to  the  credit  condition  of  all  merchants  he  antici- 
pates visiting  and  in  this  book  the  classifications  noted 
in  the  ledger  are  inserted.  These  classifications  fluc- 
tuate according  to  the  desirability  of  the  account, 
based  on  responsibility  and  payments. 

In  case  of  the  inability  of  the  credit  department 
to  collect  an  amount  past  due,  after  mailing  state- 
ments, writing  letters  and  making  drafts,  or  where 
a  merchant  is  in  financial  diflSculty,  the  account  is 
transferred  to  what  is  termed  the  "docket  ledger" 
(also  the  loose-leaf  ledger  system)  and  a  sheet  made, 
upon  which  is  inserted  the  reason  why  the  account 
js  placed  on  the  docket,  as  well  as  a  synopsis  of  all 


F.  E.  FRENCH  157 

correspondence  after  the  transfer  is  made.  This 
docket  is  carefully  watched  by  the  company's  attorney 
and  his  assistant. 

Uniform  courtesy  to  all  requests  for  credit  in- 
formation is  absolutely  essential.  A  wholesaler  sel- 
dom personally  calls  upon  a  credit  man  for  informa- 
tion, unless  he  is  somewhat  suspicious  of  the  account 
inquired  about.  Inasmuch  as  his  suspicions  are  prob- 
ably well  grounded,  valuable  information  can  often 
be  gotten  by  an  interchange  of  experiences  and  im- 
pressions. This  also  refers  to  the  reporters  for  either 
of  the  Dun  or  Bradstreet  mercantile  agencies,  who, 
if  given  honest  information,  will  gladly  give  in  return 
the  result  of  their  trade  investigation  upon  the  stand- 
ing of  any  particular  merchant. 

The  essential  points  in  this  system  are :  Full  and 
satisfactory  initial  information,  frequent  revision  of 
information,  closest  watch  on  doubtful  customers  and 
overdue  accounts,  prompt  and  strict  collections,  econ- 
omy of  time  in  the  credit  department,  and  avoidance 
of  delay  in  filling  and  shipping  orders. 


CHATPER  XIY 

A  CREDIT  AND  COLLECTION   SYSTEM   FOR  A 
MANUFACTURING  HOUSE. 

By  ALFRED  TERRELL. 
Credit  Manager,  The  Simmons  Manufactaring  Company 

The  two  chief  causes  of  a  high  percentage  of 
losses  from  bad  debts  in  a  firm's  accounts,  in  so  far 
as  they  can  be  attributed  to  the  credit  man,  are  lack 
of  judgment  and  carelessness.  From  this  the  logical 
deduction  follows  that  the  requisites  of  a  good  credit 
system  are:  first,  the  prevention  of  poor  judgments  by 
bringing  before  the  credit  man,  to  aid  him  in  his 
determination  of  credit  extension,  the  fullest  possible 
information  regarding  applicants;  and,  second,  the 
eradication  of  carelessness  by  keeping  before  the  credit 
man  at  all  times  the  details  regarding  customers'  ac- 
counts, and  by  warning  him  automatically  when  an 
account  becomes  dangerous  or  a  customer  doubtful. 

The  more  general  chapters  of  this  book  have 
treated  exhaustively  of  the  functions  and  work  of  the 
credit  department  and  the  credit  man,  and  it  would 
be  mere  repetition  to  enlarge  upon  them  here.  The 
point  has  been  emphasized  that  the  credit  man  should 
not  be  so  overwhelmed  with  petty  work  that  no  time 
is  left  him  for  thought  and  study;  his  system,  there- 
fore, should  take  care  of  the  routine  and  attend  to  the 
details  of  the  credit  department  mechanically  with- 
out the  necessity  of  his  attention,  leaving  his  mind 
free  for  the  weightier  affairs  of  his  position.    The 

358 


ALFRED  TERRELL  159 

system  should  be  such  that  orders  are  delayed  as  little 
as  possible  in  their  passage  through  the  credit  de- 
partment; information  or  records  necessary  for  the 
determination  of  an  extension  of  credit  should  be  at 
hand. 

The  collection  department  is  a  part  of  the  credit 
depar-tment.  The  system  should  provide  for  the 
prompt  collection  of  accounts  receivable.  It  should 
keep  the  collection  manager  in  touch  with  debtors 
automatically,  informing  him  of  the  general  condi- 
tion of  accounts  and  when  they  become  overdue.  The 
system  should,  finally,  keep  an  accurate  and  easily  un- 
derstood record  of  the  condition  of  all  customers,  both 
in  the  present  and  the  past,  so  that  their  whole  his- 
tory and  business  conduct  from  the  beginning  of  their 
relations  with  the  house  are  always  before  the  credit 
man.  Close  touch  with  the  bookkeeping  and  sales  de- 
partments of  the  house,  whose  activities  are  intimately 
interwoven  with  the  work  of  the  credit  department, 
so  necessary  for  the  smooth  working  of  the  general 
machinery  of  a  mercantile  establishment,  should  be 
insured  by  the  system. 

The  system  here  described  is  in  practical  opera- 
tion in  a  manufacturing  house,  which,  like  most  estab- 
lishments of  its  kind  to-day,  sells  both  to  jobbers  and 
retailers,  so  that  the  system  is  equally  applicable  to 
either  a  manufacturing  or  wholesale  business.  As  an 
excuse  for  its  having  been  selected  for  presentation 
here,  it  may  be  stated  that  the  house  which  uses  it 
last  year  showed  a  percentage  of  loss  of  seventy- 
three  thousandths  of  one  per  cent  on  the  total  amount 
of  business  done — considerably  less  than  one-tenth 
of  one  per  cent 


160  CREDITS   AND   COLLECTIONS 

All  the  mail  entering  the  house  is  opened  by  a 
mailing  clerk.  The  only  thing  that  this  clerk  does  is 
Handling  of  ^^  mark  on  the  letter  the  index  number 
Incoming  of  its  writer.  Each  correspondent  of  the 
house  and  each  firm  or  individual  who 
does  any  business  with  it  is  given  such  an  index  num- 
ber, which  is  a  consecutive  number,  one  series  for 
each  state.  Thus,  the  number  of  John  Jones,  who 
lives  in  Peoria,  111.,  will  be  Illinois  126;  that  of  Will 
Brown,  who  lives  in  Des  Moines,  la.,  is  Iowa  489. 
This  number  is  used  in  all  the  filing  done.  The  cor- 
respondence is  filed  numerically  under  the  states  by 
these  numbers;  they  are  used  as  the  numbers  of  the 
ledger  accounts  of  the  customers;  orders  are  filed  ac- 
cording to  them;  mercantile  and  other  reports  are 
classified  likewise.  An  alphabetical  index  of  all  cus- 
tomers is  kept,  so  that,  when  a  man's  name  but  not 
his  number  is  known,  the  latter  can  be  immediately 
found.  Everything  else  is  filed  according  to  his 
number. 

The  letters  given  their  proper  number  by  the 
mailing  clerk,  all  the  correspondence  passes  to  the 
credit  man  for  distribution.  Why  to  him  instead  of, 
as  is  the  usual  custom,  to  the  secretary  of  the  firm 
or  to  some  clerk?  Because  the  credit  man,  more  than 
any  other  responsible  head  of  the  house,  must  keep 
in  touch  with  the  affairs  of  the  house.  He  can  thus 
keep  absolute  track  of  collections  when  they  come 
in,  without  having  to  get  a  report  from  the  book- 
keeping department  every  day;  he  can  see  who  is  tak- 
ing advantage  of  discounts,  and  the  drafts  which  are 
returned — a  very  important  fact  for  the  credit 
man's   store   of  knowledge;   he  can   keep   in   touch 


ALFRED  TERRELL 


161 


The  Ledger  Card:  the  reverse  side  i»  ruled  the  same 
with  the  sales  and  the  other  departments  without  any 
special  work  or  reports;  the  things  he  can  pick  up  in 
the  general  correspondence — inquiries,  complaints,  ob- 
jections to  certain  prices  and  charges — afford  a  more 
enlightening  source  for  general  opinion  of  a  cus- 
tomer's attitude  and  desirability  than  is  usually  ap- 
preciated. In  short,  the  credit  man  can  thus  keep  his 
finger  on  the  pulse  of  the  business;  can  notice  every 
little  change;  can  feel  every  movement,  the  vital,  the 
vibrating  actuality. 

The  credit  man  does  not  classify  the  mail  first, 
distribute  it,  and  then  go  back  to  pass  judgment  on 
his  orders-  He  does  his  own  work  as  he  goes  along.  It 
may  seem  that  this  would  retard  the  course  of  the 
mail  and  keep  it  too  long  from  its  ultimate  destina- 
tion in  the  oflSce.  But  the  system  prevents  this.  In 
the  great  majority  of  cases  the  credit  man  need  but 


162 


CREDITS  AND   COLLECTIONS 


glance  at  an  order  to  determine  whether  he  can  let 
it  pass;  his  constant  contact  with  remittances  and 
general  correspondence  through  his  handling  the  mail 
just  described,  his  relation  to  the  collection  depart- 
ment, and  his  periodical  revision  of  all  his  informa- 
tion regarding  customers,  to  be  described  later,  bring 
to  his  mind  the  instant  he  sees  a  customer's  name 
the  condition  of  his  account.  He  need  not  know  all 
the  details  of  the  special  report  which  he  may  have  re- 
ceived from  one  or  more  of  the  agencies;  all  he  needs  to 
remember  is :  Did  I  determine  that  this  man  was  good 
when  I  studied  his  report?  What  is  the  present  con- 
dition of  his  account?  Does  he  owe  anything?  Are 
any  of  his  bills  overdue?  And  is  this  the  usual  size 
of  his  order? 

If  he  knows  these  facts,  and  they  are  favorable, 


iNDiVlOUAL  tiO 


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DM  £  OFrWcD 


'•'^iriA''j*h3liiiiliii^iiiSdifc^'l'r'-|Vl't'l'l''r 


Folder  in  which  aU  reports  are  filed 


ALFEED  TERRELL  163 

he  is  safe  in  granting  the  credit  desired  in  the  order. 
If  he  is  in  the  least  doubt  as  to  his  customer's  account, 
that  is,  if  he  is  not  sure  of  this  information,  or  if  the 
customer's  account,  as  he  remembers  it,  is  not  in  good 
condition,  let  him  wait.  Hoyne's  famous  rule  may  be 
paraphrased  for  the  credit  man  to  read:  "When  in 
doubt,  get  more  information." 

But  how,  the  question  comes,  can  the  system 
make  a  man  obey  this  rule?  How  can  the  system 
The  Workine  i^^^^^ce  a  credit  man  to  wait  and  get 
Of  This  more  information?    Is  not  that  a  mat- 

System  ^gj.  Qf  judgment  or  of  will?    The  system 

helps  and  trains  him  to  wait,  because  it  makes  the 
acquisition  of  more  information  so  easy,  almost  auto- 
matic. When  the  credit  man  feels  doubt  or  suspicion 
regarding  any  account,  he  lays  the  order  to  one  side. 
An  oflSce  boy,  knowing  that  orders  lying  in  that  place 
are  to  have  the  accounts  of  their  senders  investigated, 
takes  the  letter  or  order,  finds  on  it  the  index  num- 
ber, goes  to  the  ledger  file — the  card  system  of  ledgers 
is  used  with  this  system — picks  out  the  proper  card 
and  brings  it  to  the  credit  man. 

When  the  credit  man  has  finished  distributing 
the  correspondence,  this  little  pile  of  orders  with  the 
ledger  cards  is  ready  for  his  consideration.  The  nec- 
essity for  the  credit  department  being  the  head  of 
the  whole  office  department,  and  so  in  control  of  the 
policy  and  methods  of  the  bookkeeping  department  as 
well  as  of  its  more  immediate  department,  is  here 
evidenced.  Were  the  old  bound  book  ledgers  used, 
this  system  would  be  well  nigh  impossible,  wholly 
impossible  in  a  large  business  where  the  ledgers  must 
be  in   contant   use  in  the   bookkeeping  department. 


164  CREDITS   AND   COLLECTIONS 

But  the  taking  out  of  a  card  here  and  there  by  the 
credit  man  for  his  use  does  not  discommode  the  book- 
keeping department's  work,  and  the  account  wanted 
can  be  placed  directly  before  the  credit  man  and 
handled  by  him  with  infinitely  more  ease  and 
despatch. 

On  this  ledger  card  are  the  usual  debit  and  credit 
entries,  enabling  the  credit  man  to  see  at  once  the 
condition  of  the  customer's  account,  terms  on  which 
goods  are  sold  him,  and  his  rating.  But  the  distinc- 
tive thing  about  this  card  is  a  brief,  written  on  a 
space  provided  on  the  most  conspicuous  part  of  the 
card,  of  the  character  and  condition  of  the  man,  as 
abstracted  from  the  various  reports  and  other  sources 
of  information  gathered  regarding  him.  This  brief 
contains  the  meat  of  the  mercantile,  attorney  and  per- 
sonal reports ;  it  is  revised  constantly  as  new  informa- 
tion comes  in,  and  obviates  any  reference  to  the  long 
drawn  out  and  rehashed  mercantile  reports.  This 
card  will  tell  the  credit  man  at  a  glance  whether  the 
customer  is  worthy  of  further  credit. 

These  briefs  are  compiled  by  the  credit  man  him- 
self. When  a  report  is  received  on  a  new  customer, 
a  brief  is  made  out  and  written  on  a  small  card.  This 
is  placed,  together  with  the  report  itself,  in  a  folder, 
upon  which  is  entered  the  name,  the  index  number 
and  the  rating  and  reports  of  the  customer.  It  is  then 
passed  on  to  the  bookkeeping  department,  where  a 
ledger  card  is  made  out  for  this  man  and  the  brief 
copied  onto  it.  The  folder  with  the  card  and  reports 
is  filed  in  a  report  case  in  its  numerical  order.  As 
new  reports  and  information  come  in,  the  brief  is 
revised. 


ALFKED  TERRELL  165 

It  might  seem  convenient  for  the  credit  man  to 
have  these  small  card  briefs  filed  in  a  little  case  on 
his  desk  instead  of  with  the  reports  themselves,  so 
that  he  could  refer  to  them  quickly  without  having  to 
go  to  the  ledger  card.  But  this  is  the  very  thing 
which  would  encourage  carelessness.  Not  having  on 
this  card  the  statement  and  history  of  the  customer's 
account  with  the  house,  at  least  equal  to  the  brief  in 
importance,  the  credit  man  would  be  tempted  to 
jump  at  his  conclusions,  having  only  half  the  needed 
information  at  hand,  and  guessing  at  the  rest.  And 
guessing,  in  a  credit  department,  is  no  less  than 
criminal. 

In  going  through  his  orders,  however,  the  credit 
man  may  come  across  one  whose  determination  de- 
Handline  of  ^^^^'^^  ^^^^  he  have  more  information  re- 
Doubtful  garding  the  customer  than  merely  the 
Orders  ^^.j^f  ^^  ^-^^  ledger.     This  otder  he  then 

throws  into  a  designated  pigeonhole  and  his  clerk, 
knowing  that  the  folder  containing  the  full  reports 
and  information  on  this  man  are  wanted,  in  addition 
to  the  ledger  card,  will  get  both  and  lay  them  before 
the  credit  man.  Further  than  this,  the  credit  man 
may  desire  an  entirely  new  report  on  a  customer. 
He  then  takes  the  folder,  such  as  is  shown  in  Figure 
II,  marking  under  "Reports"  from  what  agency  or 
what  sources  he  desires  the  report  to  be  obtained. 
The  clerk  will  immediately  take  this  and  send  to  the 
proper  place  for  reports.  All  orders  which  are  being 
thus  held  for  information  are  placed  together  and  the 
credit  man  goes  through  them  every  day,  so  that  none 
will  be  overlooked  and  delayed  any  longer  than  is 
necessary. 


1C(>  CREDITS  AND   COLLECTIONS 

A  credit  man  will  often  be  sufficiently  secure 
regarding  an  account  to  send  out  the  order,  and  still 
think  it  advisable  to  get  further  information  in  order 
to  be  forearmed.  In  this  case  he  passes  the  order 
through,  but  marks  on  a  folder  as  before  the  report 
wanted,  and  the  clerk  goes  through  the  same  process 
as  for  the  preceding  case.  Instead  of  putting  these 
folders  with  the  pile  requiring  daily  attention,  they 
are  placed  in  another  pigeonhole  to  await  the  informa- 
tion sought. 

This  latter  process  applies  especially  to  first 
orders  from  new  customers.  The  clerk  who  opens  the 
mail  can  recognize  the  first  order,  since  the  man  send- 
ing it  will  have  no  index  number.  Such  orders  do 
not  go  with  the  general  mail  to  the  credit  man's  desk, 
but  go  immediately  to  his  clerk,  who  makes  out  for 
the  new  order  index  and  ledger  cards  and  a  report 
folder,  writing  on  the  cover  not  only  the  name  and 
address  of  the  new  customer,  but  also  the  rating  given 
by  the  mercantile  agencies,  which  he  immediately 
looks  up.  These  folders  then  come  to  the  credit  man. 
Very  often  he  decides  from  the  ratings  that  he  can 
venture  sending  the  order  at  once,  taking  his  leisure 
to  look  up  the  new  man  or  firm  in  detail.  This  he 
will  do  only  when  the  ratings  are  good  and  identical, 
a  very  significant  consideration,  for  if  the  ratings  are 
not  the  same,  not  only  is  one  bound  to  be  more  un- 
favorable than  the  other,  but  it  shows  that  the  agency 
having  the  poorer  rating  has  some  information  which 
the  other  could  not  obtain,  and  such  information  is 
always  the  most  important  to  the  credit  man.  As 
a  rule,  in  such  a  case,  he  will  hold  the  order  for  fuller 
reports. 


ALFRED  TERRELL  167 

The  regular  ledger  cards  are  white.  Two  other 
shades  are  used  to  indicate  specific  conditions.  When 
for  any  reason,  such  as  payments  becoming  slow  or 
local  or  general  financial  conditions  adverse,  an  order 
is  refused,  the  white  card  is  immediately  taken  out  of 
the  ledger  case,  and  a  blue  card,  with  the  identical 
figures  and  information  on  it  as  the  white  card,  is  sub- 
stituted. This  shows  to  the  credit  department  forever 
after  that  this  man  at  one  time  or  another  was  in  such 
a  poor  condition  that  he  was  refused  credit. 

In  the  same  way,  when  an  account  against  a  cus- 
tomer has  once  been  passed  up — placed  in  the  hands 
of  an  attorney — a  red  card  is  substituted  for  the 
original  white  ledger  card,  and  always  remains  in  the 
ledger  case,  even  though  an  account  is  again  opened 
with  the  customer.  It  constantly  warns  the  credit 
man  that  once  he  had  trouble  with  this  man  and  was 
on  the  verge  of  a  loss  through  him,  and  the  card 
stands  as  a  perpetual  warning. 

No  stain  or  smirch  is  harder  to  eradicate  than  one 
on  a  man's  commercial  reputation;  a  fall,  even  a 
stumble  or  slight  waywardness,  is  always  remem- 
bered, not  necessarily  against  him,  but  about  him, 
by  the  careful  credit  man,  and  rightly.  A  man  who 
has  once  shown  instability,  who  has  once  failed  to 
imeet  his  just  obligations,  who  has  once  completely 
failed,  has  shown  that  there  is  some  weakness  in  him ; 
something  constant  and  permanent  produced  that 
weakness,  whether  it  was  in  his  character,  his  ability, 
his  amount  of  capital,  or  in  his  location;  very  rarely 
does  it  happen  that  it  was  merely  transient,  although 
there  are,  of  course,  exceptions.  Once  a  man's  account 
is  upon  such  a  blue  or  red  card,  although  he  may  come 


168  CREDITS   AND   COLLECTIONS 

to  have  it  entered  upon  his  brief  that  he  has  completely 
recovered  and  is  now  perfectly  sound  and  trust- 
worthy, still  always  will  his  former  weakness  be 
brought  to  the  attention  of  the  credit  man. 

The  order  O.  K.'d  by  the  credit  man,  it  goes  to 
the  invoice  clerk.  He  makes  four  carbon  copies  of 
Routine  ^^^  order  on  the  machine.    The  first  one, 

Collection  called  the  quad  sheet,  goes  to  the  collec- 
Methods  ^j^j^  department;  the  second  serves  as  the 
bill  which  is  sent  to  the  customer;  the  two  others  go 
to  the  warehouse  for  the  filling  of  the  order.  When 
the  order  is  filled,  one  is  kept  at  the  warehouse  as  its 
record  and  receipt  of  the  goods  shipped;  the  other  is 
sent  back  and  serves  as  the  source  from  which  to  post 
the  ledger.  The  first  and  second  copies,  which  have 
been  held  by  the  billing  clerk  pending  the  shipment 
of  the  goods,  are  sent  to  their  destinations.  The  one 
which  goes  to  the  collection  department  is  divided 
into  two  parts  by  a  perforated  line,  so  that  the  part 
containing  entry  of  the  individual  order  number,  the 
date  shipped,  the  order  number,  the  terms  and  the 
amount  of  the  invoice  can  be  torn  off.  This  end 
which  is  torn  off  serves  as  the  collection  department's 
tickler;  the  remaining  part  of  the  bill  is  filed  in  its 
numerical  order  number  for  convenience  in  reference. 

Suppose  this  order  was  shipped  on  March  1st, 
and  the  terms  are  thirty  days  net.  The  quad  will  be 
filed  in  the  tickler  thirty  days  ahead.  On  the  1st  of 
April,  therefore,  it  will  come  to  the  attention  of  the 
statement  clerk  in  charge  of  the  tickler.  He  looks 
up  the  ledger  account  of  the  customer,  and  if  he  finds 
the  bill  is  unpaid,  he  will  send  a  statement  of  the 
account;  which  is  made  in  duplicate.    The  original  is 


ALFRED  TERRELL 


169 


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The  Order  Blank:  four  manifold  copies  are  made  out.  The  copy 

here  reproduced  goes  to  tJie  collection  department  and 

shows  the  perforated  end  which  serves  as  the  tickler 

mailed  to  the  customer  and  the  duplicate  is  put  over 
for  ten  days.  A  stamp  is  used  on  the  statement  sent 
out  inviting  the  dealer  to  remit  by  New  York  or 
Chicago  draft,  as  the  banks  charge  exchange  on  local 
checks,  and  saying  that  should  we  not  receive  prompt 
remittance,  we  presume  you  want  us  to  make  sight 
draft. 

On  the  20th,  if  the  ledger  accounts  show  no 
remittance,  draft  is  made.  The  draft  is  filled  out  in 
duplicate;  the  duplicate  is  sent  to  the  bank  through 
which  draft  is  made;  the  original  is  kept  for  filing  in 
the  tickler,  ten  days  ahead  again. 

If  the  draft  is  returned  dishonored,  the  account 
passes  into  the  hands  of  the  collection  manager,  who 
is  very  often  the  credit  man  himself.  He  usually 
enters  into  correspondence  with  the  debtor,  attempt- 
ing to  place  the  matter  before  him  in  such  a  light 
that  no  more  extreme  methods  will  have  to  be  resorted 
to.  Often,  when  an  account  has  reached  this  stage, 
orders  are  held  up  until  some  kind  of  satisfaction  is 
secured.    In  this  correspondence  the  debtor  is  always 


170  CREDITS   AND   COLLECTIONS 

urged  to  offer  some  satisfaction,  some  form  of  settle- 
ment, however  slow  it  may  be;  to  unburden  himself 
to  such  an  extent  that  the  house  may  know  where  it 
is  at  regarding  the  account.  A  very  efiQcacious  play  in 
extreme  cases  is  to  telegraph  rather  sharply  immedi- 
ately upon  return  of  a  draft,  expressing  surprise 
at  the  dishonor  of  the  draft  and  demanding  immediate 
remittance.  This  will,  in  the  majority  of  cases,  bring 
payment.  If  it  does  not,  after  one  or  two  letters,  an- 
other telegram,  very  sharp  this  time,  will  be  likely  to 
bring  something.  The  main  thing  in  these  collection 
methods  is  to  seek  to  impress  the  doubtful  debtor 
that  the  house  is  watching  its  accounts  sharply;  that 
it  wants  its  money  when  due;  that  it  is  bent  on  doing 
businc.:,!  on  a  business-like  basis. 

If  no  satisfaction  can  be  secured  through  specific 
means,  forcible  legal  methods  must  be  resorted  to. 
Before  any  legal  steps  are  taken  concerning  an  ac- 
count, the  matter  is  referred  to  the  credit  man,  and 
is  left  in  his  hands.  He  may  mal^e  a  further  effort 
to  secure  payment  through  peaceable  means,  or  may 
at  once  hand  the  account  to  an  attorney  for  collection. 

When  an  account  has  been  placed  in  the  hands 
of  an  attorney,  a  red  ledger  card  is  at  once  made  out 
for  the  debtor,  and  the  balance  of  his  account  is 
entered  in  a  suspense  account.  At  the  end  of  each 
year  the  balance  on  the  suspense  account  is  examined 
and  an  estimate  made  of  the  probable  percentage  of 
collections  to  be  obtained.  Thus,  if  the  credit  man 
thinks  that  twenty-five  per  cent  of  the  claims  in  the 
suspense  account  are  collectible,  seventy-five  per  cent 
are  entered  in  the  profit  and  loss  account  for  the  year; 
the  other  twenty-five  are  left  in  the  suspense  account. 


ALFRED  TERRELL  171 

Whenever  a  collection  is  made  in  this  account,  it  is 
credited  to  it.  The  object  of  this  suspense  account  is 
to  keep  bad  debts  off  the  books,  without,  at  the  same 
time,  charging  them  into  profit  and  loss  account  at 
once,  and  so  necessitating  the  opening  of  that  account 
in  the  course  of  the  fiscal  year,  a  procedure  replete  in 
possibilities  of  errors  and  concealments. 

It  is  thus  apparent  how  the  credit  man,  through 
his  connection  with  the  collection  department,  which 
Keeuinff  In  ^^P^rts  to  him  all  accounts  overdue  more 
Touch  With  than  thirty  days,  and  also  all  accounts  on 
A.ccouiits  which  drafts  have  been  dishonored, 
keeps  in  touch  with  delinquent  accounts.  His  in- 
formation is  rendered  still  more  accurate  from  the 
fact  that  he  handles  the  remittances  in  the  mail  and 
examines  many  accounts  in  the  course  of  a  month. 

In  the  particular  business  in  which  this  house  is 
engaged,  most  of  the  heavy  buying  is  done  at  two 
distinct  periods  of  the  year.  Just  before  these  buy- 
ing periods  come  around  the  credit  man  goes  over  all 
his  accounts  and  the  reports  on  all  his  customers  and 
revises  them,  getting  fresh  information  and  reports  in 
all  cases  where  it  appears  in  the  least  necessary.  In 
some  few  cases,  of  houses  on  such  a  firm  foundation 
and  reputation  that  their  commercial  honor  is  posi- 
tively unassailable,  it  would  be  a  waste  of  time  and 
energy  to  get  fresh  reports.  In  other  cases  reports 
may  have  been  obtained  only  a  short  time  ago,  and 
so  will  serve  for  the  coming  season.  The  semi-annual 
revision  gives  the  credit  man  a  new  hold  on  his  ac- 
counts and  a  clear  survey. 

It  is  true  that  this  system  alone  cannot  make  a 
credit  man;  nor  can  it  make  a  very  careless  credit 


172  CREDITS   AND   COLLECTIONS 

man  entirely  careful.  The  credit  man  must  do  his 
share;  the  system  will  meet  him  more  than  half  way; 
in  fact,  will  educate  him  into  careful,  conservative 
habits. 

This  system  will  work  carefulness  into  a  credit 
man;  he  will  never  go  ahead  when  in  doubt.  Every 
man  must  face  some  losses;  he  cannot  escape  them 
if  he  does  his  duty  by  the  sales  end  of  the  business. 
In  describing  this  system,  it  should  not  be  understood 
that  the  taking  of  no  chances  at  all  is  advised.  Such 
a  course  would  be  as  bad  as  being  too  free  with  credit; 
but  if  the  credit  man  does  take  chances,  by  proper 
judgment  in  picking  his  chances  and  by  proper  care- 
fulness in  setting  the  terms  on  which  he  takes  them 
and  the  guards  he  puts  about  them,  he  can  reduce  his 
chances  almost  to  certainties. 


CHAPTER  XV 

A  SYSTEM  FOR  THE  CREDIT  DEPARTMENT  OF 
A  RETAIL  HOUSE. 

A«  Used  in  Chicago's  Department  Stores 

The  two  chief  desideratums  to  be  reached  in  the 
accounting  end  of  a  retail  credit  department  are  ex- 
pansibility and  promptness — expansibility,  because 
the  great  retail  houses  now  carry  anywhere  from  five 
to  one  hundred  thousand  accounts  on  their  books, 
some  of  which  are  intermittent,  others  very  heavy; 
promptness,  because  it  is  much  more  important  in 
retail  than  in  wholesale  business  to  train  customers 
to  prompt  paying,  and  this  can  only  be  accomplished 
by  submitting  bills  regularly  and  quickly. 

Accounts  are  usually  opened  in  a  retail  store  in 
an  indirect  way.  A  customer  who  is  making  his  or 
her  first  credit  purchase  does  not  generally  make  a 
direct  request  for  credit,  but  simply  has  the  purchase 
charged.  The  clerk  who  makes  the  sale,  not  knowing 
of  course  that  this  customer  has  no  charge  account, 
makes  out  his  usual  charge  sales  slip,  indicating  that 
the  sale  is  to  be  charged.  The  ticket  is  passed  up  to 
the  stamper  like  any  other,  and  he,  not  finding  the 
customer's  name  in  his  book,  knows  this  is  a  new 
customer,  and  sends  the  matter  up  to  the  credit  office. 

If  the  customer  wishes  to  carry  the  goods  away 
with  him  on  the  first  purchase,  he  is  usually  re- 
quested to  see  the  credit  manager  at  once;  if  the 
goods  are  to  be  delivered,  the  credit  manager  has  time 

173 


174  CREDITS   AND   COLLECTIONS 

to  investigate  the  case  at  greater  leisure.  When  such 
a  first  charge  slip  comes  to  the  credit  manager,  or  a 
direct  request  for  credit  is  made,  he  sets  the  ma- 
chinery in  motion  for  investigating  this  new  cus- 
tomer. 

In  the  first  place  he  may  request  a  personal  in- 
terview. In  this  the  two  things  he  seeks  to  discover 
The  Basis  ^^^  *^®  integrity  of  the  applicant  and  hia 
Of  Credit  resources.  The  first  he  must  discover 
xtension  through  his  powers  of  observation  and 
his  ability  to  read  human  nature,  and  also  from  the 
consistency  of  the  facts  which  the  applicant  gives 
him.  His  resources  he  must  find  out  from  direct  ques- 
tions as  to  the  position,  income  and  the  property  of 
the  applicant.  These  facts — the  applicant's  name  and 
residence,  place  of  business,  or,  where  the  wife  ap- 
plies, the  husband's  income  and  property — the  credit 
manager  enters  on  a  blank. 

He  then  proceeds  to  make  use  of  outside  sources 
of  information.  He  verifies  the  residence  and  the 
place  of  business  of  the  applicant.  He  applies  to  the 
local  mercantile  agencies  for  reports  upon  the  in- 
dividual in  question.  These  agencies  in  one  way  or 
another  accumulate  a  great  mass  of  information  and 
can  afford  reports  on  many  individuals,  especially 
those  questionable  persons  against  whom  they  have 
held  accounts  for  collection,  or  previous  queries,  and 
therefore  concerning  whom  they  have  collected  in- 
formation. The  character  and  scope  of  the  services  of 
mercantile  agencies  in  this  direction  are  improving, 
and  information  on  almost  any  individual  of  any 
standing  is  obtainable.     These  agencies   gather  in- 


A  KETAIL  CREDIT  SYSTEM  175 

formation  almost  entirely  on  individuals  and  not,  as 
a  rule,  on  firms  and  corporations. 

The  regular  commercial  rating  agencies  can  be 
appealed  to  in  case  the  applicant  is  a  man  engaged 
in  any  commercial  pursuits;  in  this  case  the  credit 
man  will  receive  the  same  information  that  a  whole- 
sale credit  man  would  get — the  complete  facts  con- 
cerning a  man's  business  record,  integrity,  property 
and  credit  standing. 

The  credit  manager  receives  every  morning  the 
mercantile  sheets  and  legal  bulletins  which  give  the 
bankruptcies  and  failures  of  the  previous  day,  the 
suits  which  have  been  brought,  both  in  the  higher 
courts  and  justice  courts,  the  mortgages  foreclosed 
and  chattel  mortgages  recorded.  These  sheets  are  an- 
nually compiled  into  a  year  book,  and  into  a  decade 
book,  so  that  one  book  will  give  the  names  alpha- 
betically arranged  of  all  individuals  against  whom 
suits  have  been  filed,  or  who  have  gone  into  bank- 
ruptcy, or  against  whom  mortgages  have  been 
recorded  or  foreclosed  in  the  ten  years  past.  This 
is  a  very  important  source  of  information  to  the  retail 
credit  manager  in  a  large  city. 

In  the  majority  of  instances  a  personal  interview 
with  an  applicant  for  credit  is  not  necessary,  this 
outside  information  affording  all  the  data  essential 
for  the  formation  of  the  credit  manager's  judgment. 
Usually  the  applicant  is  not  even  aware  that  an  in- 
vestigation has  been  made.  It  may  be  said  that  in 
a  great  majority  of  cases  where  credit  is  asked,  it  is 
extended.  This  is  done  because,  in  a  retail  more  than 
in  a  wholesale  house,  credit  can  be  graded  and  quali- 
fied according  to  the  customer's  status. 


176  CREDITS  AND   COLLECTIONS 

When  the  credit  manager  has  determined  that  ex- 
tension of  credit  is  advisable,  he  places  a  definite 
How  Facts  ^iD^it  on  the  monthly  credit  of  the  new 
Obtained  customer;  for  instance,  he  determines 
Are  used  from  his  knowledge  of  the  individual's 
reputation,  income  and  resources  that  he  is  entitled  to 
a  credit  of,  say,  $50  a  month.  This  does  not  mean 
that  the  customer  will  never  be  allowed  to  buy 
beyond  this  sum,  although  no  one  but  the  credit  man- 
ager has  discretion  to  extend  credit  beyond  this  sum, 
and  he  will  do  so  only  after  careful  investigation; 
the  customer  never  is  told  that  such  a  limit  has 
been  set. 

When  an  account  is  opened,  the  name  of  the 
customer  and  the  salient  facts  regarding  him — ^his 
residence,  business  address  and  credit  limit — are 
spread  on  all  the  indexes  in  the  hands  of  the  stampers 
throughout  the  store.  The  duty  of  these  stampers 
is  to  approve  of  all  charge  sales,  and  the  names  and 
limits  in  these  indexes  afford  the  basis  on  which  they 
pass  on  sales.  The  limit  is  also  entered  at  the  top 
of  the  customer's  ledger  page. 

'All  information  collected  concerning  the  cus- 
tomer— his  own  statements,  reports  from  agencies  and 
other  facts — is  placed  in  a  folder,  which  is  filed  alpha- 
betically in  a  vertical  file  cabinet.  In  this  folder  is 
placed  also  all  subsequent  information;  for  instance, 
if  the  customer  becomes  notorious  for  slow  paying 
or  for  complaints,  or  if  his  account  has  to  be  placed 
in  the  hands  of  an  attf^ney  for  collection,  these  facts 
find  their  way  into  this  folder,  and  it  becomes  a 
complete  source  of  information    upon  every   credit 


A  RETAIL  CREDIT  SYSTEM  177 

customer  of  the  house.  These  records  are  kept  in 
credit  manager's  office. 

A  credit  manager's  source  of  information  for 
credit  customers  of  whom  he  has  a  list  is  therefore 
threefold.  He  has  in  the  first  place  his  personal  im- 
pression of  the  customer,  in  the  second  place  he  has 
all  the  specific  facts  regarding  the  customer's  history 
and  character  in  his  folder  files,  and  in  the  third 
place  he  has  the  customer's  accounts.  Information 
on  all  but  the  gilt-edged  customers  should  be  revised 
at  least  once  a  year.  For  this  the  credit  manager  has 
his  original  sources  of  income  to  draw  from,  and  he 
should  in  addition  go  over  all  accounts  in  the  least 
doubtful. 

Now  let  us  go  back  and  follow  the  course  of  one 
charge  sale  through  this  system,  on  the  supposition 
Method  of      *^^*  *^^  customer  making  the  purchase 
Passing  on     has  an  open  account  with  the  store. 
Credit  Sales  When  the  sales  ticket  for  a  charge 

sale  has  been  made  out,  it  first  goes  to  a  stamper  to 
be  approved  for  delivery.  There  are  twenty-five  of 
these  stampers  scattered  throughout  the  store.  Each 
has  an  index  in  which  is  listed  every  one  of  the  store's 
charge  customers,  in  good  standing  or  otherwise. 

Opposite  each  name  is  set  a  certain  limit  of 
credit.  These  limits  must  be  revised  daily,  for  the 
limit  here  set  down  is  not  identical  with  the  custom- 
er's regular  credit  limit,  nor  is  it  wholly  determined 
from  it;  it  depends  also  upon  the  amount  the  customer 
already  owes  for  the  current  month,  how  much  he  has 
overdue  and  his  general  standing.  As  a  further 
safeguard,  the  stamper  is  allowed  to  pass  through 
sales  up  to  only  one-fourth  of  this  limit.    If  the  sale 


178  CREDITS   AND   COLLECTIONS 

calls  for  a  greater  sum  than  this,  the  ticket  must  be 
sent  up  to  the  credit  office  for  consideration.  It  must 
be  remembered  that  the  purchases  made  by  a 
customer  in  one  visit  may  go  to  half  a  dozen  different 
stampers,  so  the  limit  of  each  stamper  must  be  small. 
The  credit  department,  having  complete  information 
at  hand,  can  determine  intelligently  and  safely 
whether  credit  above  this  limit  can  be  extended. 

To  take  a  concrete  instance,  suppose  a  customer's 
total  credit  limit  is  $50.  Suppose  it  is  the  20th  of  the 
month,  and  the  customer  has  already  drawn  upon  his 
account  to  the  extent  of  $20.  On  the  morning  of  the 
20th  the  credit  limit  placed  beside  this  customer's 
name  in  each  of  the  stamper's  books  will  probably 
be  about  $20,  and  each  stamper  can  pass  sales  through 
for  sums  up  to  $5.  If  a  purchase  exceeds,  it  is  referred 
for  approval  to  the  credit  office. 

When  an  account  is  opened  the  new  customer 
is  given  a  card  with  merely  his  confidential  iden- 
tification number  upon  it.  He  must  present  this 
card  whenever  he  wishes  to  carry  away  purchases 
which  he  has  charged.  This  prevents  one  person 
buying  fraudulently  under  another's  name.  The 
salesman  attaches  this  card  to  the  sales  ticket  and  it 
is  passed  first  to  an  inspector — one  of  whom  is  in 
every  department — who  has  a  book  with  these  num- 
bers listed  in  them  and  has  discretion  to  pass  through 
sales  up  to  a  limit  of  a  few  dollars.  If  the  purchase 
exceeds  this  limit,  the  inspector  refers  it  to  the  floor 
walker,  and  if  he  considers  the  amount  too  large  for 
him  to  pass  on  it  goes  up  to  the  stampers,  and  must 
pass  through  the  regular  routine. 

At  the  end  of  each  day,  all  charge  tickets  are 


A  RETAIL  CREDIT  SYSTEM  179 

gathered  together  and  go  into  the  credit  sales  section 
of  the  bookkeeping  department,  after  they  have  gone 
through  the  auditor's  oflSce  and  been  checked  there. 
The  charges  are  immediately  posted  upon  the 
ledgers.  Loose  leaf  ledgers  are  used  in  this  system, 
and  the  accounts  are  arranged  alphabetically.  The 
The  Ledeer  ^^<^Ser  sheets  are  ruled  off  for  three  col- 
and  Billing  umns:  In  the  first  column  are  entered 
System  each    day    the    debit    charges;    in    the 

second  column  are  entered,  in  red  ink,  credits,  in 
the  third  column  is  entered  the  balance  due.  This 
column  is  balanced  every  time  an  entry  is  made  in 
either  of  the  other  two,  so  that  a  glance  at  any  ledger 
page  will  show  at  once  how  the  account  stands.  When 
a  ledger  sheet  is  full  it  is  transferred  to  the  transfer 
files,  also  arranged  alphabetically,  and  is  filed  away 
in  vaults  with  its  predecessors.  This  enables  an 
establishment  to  keep  together  in  one  place  the  entire 
account  of  each  customer,  no  matter  how  many  years 
it  may  have  run. 

After  the  posting  is  completed,  the  sales  slips  are 
passed  on  to  the  billing  department,  and  the  charges 
are  immediately  entered  on  bills;  that  is,  bills  are  not 
made  from  the  ledger  account  at  the  end  of  the 
month,  but  sales  are  posted  direct  to  bills  day  by 
day.  Therefore,  if,  on  the  first  day  of  the  month,  Mr. 
Smith  makes  a  purchase  of  $10  and  has  it  charged  to 
his  account,  the  morning  of  the  2d  this  slip  with  all 
the  others  comes  to  the  bill  clerks,  and  a  new  bill  for 
the  month  of  June  is  started  for  him,  upon  which 
first  charge  is  at  once  entered.  The  billhead  is  ruled 
for  three  column  entries:  In  the  first  column  are  en- 
tered the  debit  charges,  not  in  totals,  but  with  each 


180  CREDITS  AND   COLLECTIONS 

article  of  the  sale  itemized;  the  second  column  is 
used  for  totaling  these  individual  articles  by  daily 
sales;  the  third  column  is  used  for  entering  credits. 
The  bill  clerks  keep  the  bills  arranged  alphabetically 
during  the  whole  month,  and  each  day  they  post  the 
charges  from  the  previous  day's  sales  tickets. 

On  the  last  day  of  the  month,  therefore,  the  bill 
clerk  has  merely  to  post  the  charges  of  the  day,  and, 
without  any  further  work  except  to  total  up  the 
columns  and  subtract  the  credit  from  the  debits,  the 
bills  are  complete  and  can  be  sent  out  on  the  evening 
of  the  last  day  of  the  month. 

The  bills  are  made  out  in  duplicate  and  the 
carbon  copy  is  filed  in  an  individual  folder  for  each 
customer,  in  a  vertical  filing  case,  where  are  kept  all 
the  duplicate  bills  for  the  previous  twenty-four 
months. 

Retail  customers,  even  more  than  the  customers 
of  the  wholesale  houses,  must  be  trained  to  prompt 
Collection  payments.  This  is  true  not  only  because 
Policy  and  a  retail  house  sells  on  a  close  margin 
Methods  ^^^^  considers  after  all  that  it  is  merely 

doing  a  favor  by  extending  credit  at  all,  but  also 
because  it  is  impossible  to  get  the  close  information 
and  the  firm  hold  over  a  customer  that  the  wholesale 
house  can.  The  retail  house  deals  principally  with 
women.  For  this  reason  collections  must  be  made 
in  a  more  adroit  and  less  coldly  businesslike  way. 
When  an  account  is  opened  with  a  customer,  espe- 
cially if  she  be  a  woman,  she  is  given  plainly  to 
understand  that  bills  must  be  met  between  the  1st 
and  10th  of  the  month,  immediately  upon  receipt  of 
statement    If  they  are  not  paid  by  the  15th  a  second 


A  RETAIL  CREDIT  SYSTEM  181 

statement  is  immediately  sent,  calling  the  customer's 
attention  to  the  oversight  and  asking  for  an  im- 
mediate remittance.  The  customer's  charge  sales  are 
not  stopped  at  once  unless  the  account  in  question  is 
very  large,  for — and  here  again  because  the  customers 
are  chiefly  women — it  is  a  fatal  policy  to  refuse  a 
woman  credit  when  she  has  been  accustomed  to  receive 
it.  She  is  apt  to  regard  such  action,  which  a  business 
man  would  look  upon  as  an  ordinary  condition  of  busi- 
ness, as  an  insult,  and  promptly  withdraw  her  patron- 
age. It  is  also  impossible  to  dun  this  class  of  custom- 
ers in  the  same  cold-blooded  and  insistent  way  that  a 
wholesale  house  can  do. 

If  the  second  statement  brings  no  result,  personal 
collectors  are  sent  out.  These  are  all  under  the  juris- 
diction of  the  credit  manager.  For,  as  has  been  said 
before,  this  is  not  purely  a  business  transaction. 
There  is  a  personal  and  human  element  in  it  which 
must  be  taken  into  consideration.  It  cannot  be  de- 
termined on  business  principles.  It  must  be  carried 
on  with  an  understanding  and  consideration  of  human 
nature  as  exemplified  in  this  class  of  customers. 

The  credit  manager  of  a  retail  house  must  above 
all  remember  that  most  people  are  honest  and  want 
to  be  honest,  and  that  even  a  greater  majority  will  be 
honest  if  they  are  helped  along  in  the  right  direction. 
He  must  study  the  personalities  of  his  customers,  their 
social  and  business  conditions  especially,  so  that  he 
will  know  when  it  is  well  to  let  an  account  run  for 
two,  three  and  even  six  months  without  making  ex- 
treme demands  upon  the  customer.  On  the  other 
hand,  when  a  retail  credit  man  has  once  made  up 
his  mind  that  he  cannot  afford  to  get  any  deeper  with 


182  CREDITS  AND   COLLECTIONS 

a  customer,  he  should  act  quickly  and  promptly. 
The  customer  must  be  made  to  understand  that  he 
is  not  treating  the  house  fairly  by  not  paying  his 
account,  and  that,  although  the  store  wants  his  ac- 
count and  is  glad  to  have  his  business,  further  credit 
must  be  refused  him  until  a  settlement  is  made. 

The  collection  system  of  this  store  is,  therefore, 
very  simple.  It  uses  the  two  statements  mentioned, 
and  after  that  treats  each  case  individually  through 
collectors  under  the  instruction  of  the  credit  manager. 

A  retail  store  must  be  chary  of  bringing  suits 
for  collection.  Bringing  a  suit  means  the  loss  of  a 
customer  in  a  double  sense.  The  retail  credit  man 
always  has  to  keep  in  mind  that  his  object  is  to  in- 
crease sales,  and  that  anything  he  may  do  to  lessen 
cash  trade  is  superlatively  criminal.  If  a  customer  is 
not  worthy  of  credit,  the  credit  man  should  at  least 
not  turn  him  away  from  the  paths  of  cash  buying. 
A  suit  will  mean  the  loss  of  a  customer's  cash  trade 
as  well  as  his  credit  trade.  Then,  too,  habitual  suit 
bringing  will  give  a  store  a  bad  reputation.  The  out- 
side world,  not  knowing  the  circumstances  of  the 
case,  will  frown  upon  a  store  which  is  known  to  bring 
suit  frequently  and  quickly. 

It  has  been  found  that  constant  pounding  by 
correspondence,  by  repeated  statements  and  col- 
lector's visits,  is  much  more  eflQcacious  than  stringent 
measures  in  bringing  payment  in  the  case  of  the  re- 
tail house,  where  a  debt  is  looked  upon  more  as  a 
thing  of  honor  and  less  as  a  thing  of  business. 


CHAPTER  XVI 

A  CREDIT  AND  COLLECTION  SYSTEM  FOR  AN 
INSTALLMENT  HOUSE 

Bt  henry  MARCUS 
Of  SpiegeVs  House  Furnishing  Company 

It  is  doubtless  true  that  in  every  business  the 
collections  are  a  vital  part  of  the  credit  department, 
but  in  no  other  business  enterprise  are  the  collections 
so  prominent  and  vital  a  feature  as  in  a  business  con- 
ducted on  the  installment  plan.  In  a  credit  system 
for  the  installment  house,  therefore,  the  point  of  em- 
phasis, the  heart  about  which  structure  must  be  built, 
is  the  collections. 

Such  a  system,  to  be  successful,  must  accomplish 
four  objects.  First,  it  must  provide  a  quick  means 
by  which  the  responsible  head  of  a  credit  department 
may  approve  an  account.  In  a  retail  installment 
business  sales  are  made  to  customers  personally  in 
the  store,  and  accounts  must  be  opened  almost  on  the 
spur  of  the  moment,  with  little  investigation,  and, 
what  is  even  more  important,  without  giving  offense 
or  annoyance  to  the  customer,  who  is  probably  stand- 
ing at  the  credit  man's  elbow  while  he  is  deciding  on 
the  advisability  of  extending  credit. 

In  the  second  place,  the  system  must  afford  ade- 
quate security  for  the  goods  sold,  and  in  this  way 
make  up  for  the  almost  entire  impossibility  of  choos- 
ing customers.  Thirdly,  since  the  amount  involved 
is  relatively  small  to  begin  with,  the  installment  pay- 

1S.3 


184  CREDITS   AND   COLLECTIONS 

merits  themselves  are,  of  course,  still  smaller.  The 
bookkeeping  required  for  a  single  purchase  is  con- 
siderable, and  the  system  must  seek  to  reduce  and 
simplify  it  as  much  as  possible.  Lastly,  the  system 
must  provide  a  cheap  and  simple  but  efficient  and  al- 
most automatic  method  for  making  the  collections. 
This  is  its  most  important  function.  The  system  here 
described  is  in  use  in  a  large  furniture  installment 
house,  and  has  been  found  to  fulfill  these  four  objects. 

When  a  sale  which  is  to  be  paid  in  installments 
is  made,  the  salesman  makes  out  an  order  blank,  such 
Orders  ^®  ^^  shown  in  Figure  1.    On  this  blank 

Taken  and  he  enters  the  name  and  address  of 
Entered  ^j^g  customer,  the  amount  of  the  cash 

payment  which  is  always  insisted  upon  as  evidence 
of  good  faith,  the  amount  and  the  time  of  the 
monthly  installment,  and  the  salesman's  name.  In 
the  spaces  below  are  then  entered  the  various  items 
of  goods  bought. 

The  order  goes  at  once  to  the  head  of  the  credit 
department,  or  preferably  to  a  member  of  the  firm, 
for  approval.  If  approved,  the  purchaser  gives  to 
the  house  his  note  for  the  amount  of  the  sale  less  the 
cash  payment.  This  note  is  secured  by  a  mortgage 
taken  by  the  seller  on  the  goods  sold.  The  mortgage 
must  at  once  be  taken  by  the  customer  before  a  justice 
of  the  peace  to  be  sworn  to,  and  before  a  county  re- 
corder to  be  recorded.  The  goods  are  then  shipped 
to  the  customer. 

This  sale  order  has  been  made  out  in  duplicate, 
one  to  be  kept  in  the  office  as  the  original  record,  the 
other  to  be  sent  to  the  various  department  heads, 
in  order  that  they  may  find  out  at  once  whether  they 


HENRY   MARCUS  185 

have  the  goods  desired  in  stock.  In  the  ofiQce  the 
order  is  given  an  order  number,  by  which  this  sale  is 
known  forever  after.  A  clerk  now  makes  out  a  new 
order  sheet  (Figure  I)  in  triplicate  from  this  sales 
blank,  entering  thereon  the  same  data  as  was  on  the 
order  blank,  except  that  the  price  goes  only  on  the 
first  sheet.  This  sheet  remains  in  the  office;  from  it 
all  the  ofiSce  records  described  below  are  made.  The 
other  two  go  to  the  shipping  department.  One  of 
these,  identical  with  that  shown  in  Figure  I,  serves 
as  the  shipping  clerk's  assembling  sheet.  As  the 
various  items  on  the  order  are  loaded  on  the  wagon 
after  being  assembled,  he  checks  them  off  his  sheet. 
Those  articles  ordered  which  he  has  not  in  stock,  and 
shipment  of  which  he  must  delay,  he  circles  on  the 
sheet,  and  at  the  same  time  enters  on  a  back  order 
sheet.  This  he  keeps  on  file  and  checks  off  the 
articles  thereon  as  he  receives  them  from  the  manu- 
facturer and  delivers  them  to  the  customer.  The 
third  sheet  serves  as  the  driver's  receipt  (Figure  I); 
he  carries  this  with  him,  has  it  signed  by  the  customer 
and  returns  it  to  the  shipping  clerk.  When  the  goods 
have  been  delivered,  the  two  sheets  which  were  used 
in  the  shipping  department  are  returned  to  the  office 
and  filed  numerically  for  future  reference,  in  case 
complaint  is  ever  made  of  non-delivery  or  delivery  of 
wrong  goods. 

From  the  sheet  which  is  left  in  the  office,  two 
cards  are  made  out,  one  the  ledger  card,  the  other 
the  collector's  card.  All  ledger  accounts  are  kept 
on  cards  which  are  filed  alphabetically,  according  to 
the  name  of  the  customer.  On  the  ledger  card  (Fig- 
ure n)  is  entered  the  name  and  address  of  the  cus- 
tomer, his  occupation,  the  name  of  the  salesman,  date 


o  o 

Spiegel's  Mouse  Furnishing  Co. 


Addrsfttt  - 


!lst  Ptnt.- 
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Monthly— 

dalesman. 


««Mrno»4«r«ftwiP.  rzm  k 


liHinnT        nwaei 


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Received  of  SPIE6EL'S  HOUSE  FURNISHIN6  CO. 


Driver 


AddraM 


CnfOl  OUMTTTV 


o 


o 


SPIEGEL'S  HOUSE  FURNISHING  CO. 


ORDER  Na 

Namo 

AddraM 


D«te 


When 

.Salesman 


Figure:     Upper  form  is  salesman's  order  blank;  lower  is  one  of 
triplicate  copies  made  out  in  office;  middle  the  driver's  copy. 


HENRY   MARCUS  187 

of  the  sale,  the  order  number,  the  amount  of  the  pur- 
chase, the  amount  of  the  first  payment,  and  the  bal- 
ance due.  In  the  blanks  provided  underneath  are 
entered  in  red  ink  the  dates  and  amounts  of  the  in- 
stallment payments  to  which  the  customer  has  pledged 
himself,  and  spaces  are  provided  for  the  entry,  in 
black  ink,  of  the  date  and  amount  of  the  actual  pay- 
ments and  the  balances  due  after  each  payment.  By 
comparing  the  black  and  the  red  entries  at  any  time 
the  exact  condition  of  the  account  can  be  seen. 

Whenever  a  sale  is  made,  the  amount  of  cash 
paid  down  is  entered  on  the  cash  book,  while  the 
amount  of  the  charge,  that  is  to  say,  the  amount  of 
the  sale,  less  the  cash  payment,  is  entered  in  the  jour- 
nal and  the  folio  on  which  this  account  is  entered  is 
also  recorded  on  the  ledger  card  so  that  it  can  be  re- 
ferred to  at  any  time. 

The  collector's  card  (Figure  II)  has  recorded  upon 
it  the  same  data  as  the  ledger  card,  but  is  placed  in 
Method  of  ^  tickler  cabinet,  according  to  the  date 
Making  on  which  the  next  payment  falls  due. 

Collections  Thus,  in  the  cards  reproduced  here- 
with, a  sale  was  made  on  February  1st  amount- 
ing to  $100,  of  which  $10  was  paid  down  and 
the  first  installment  is  due  March  1st.  The  col- 
lector's card  would  be  filed  in  the  "I"  pigeonhole  of 
the  tickler.  On  the  morning  of  March  1st  the  cards 
in  this  March  pigeonhole,  all  with  payments  due  this 
day,  are  pulled  out,  each  is  compared  with  its  cor- 
responding ledger  card  to  see  if  the  payment  due 
has  already  been  made  by  the  customer;  if  the  ledger 
card  shows  that  the  payment  was  made  say  two  days 
before,  the  amount  of  the  payment  and  the  date  are 


188  CREDITS   AND   COLLECTIONS 

entered  on  the  collector's  card,  and  it  is  thrown  ahead 
into  the  pigeonhole  of  the  next  payment,  April  1st. 
The  cards  of  the  customers  who  have  not  paid  are 
given  to  the  manager  of  the  collection  department. 
He  first  looks  through  them  carefully  to  see  whether 
any  there  are  regular,  good  payers,  and  not  therefore 
to  be  dunned.  The  cards  of  these  customers  he  takes 
out  and  files  in  the  tickler  a  few  days  ahead;  if  by 
the  time  these  cards  come  to  him  again  the  payments 
nave  not  been  made,  he  will  send  the  collector  to 
the  customers. 

The  rest  of  the  cards  the  collection  manager  class- 
ifies by  districts  into  which  he  has  the  city  divided 
for  collection  purposes,  and  to  each  of  which  a  col- 
lector is  assigned.  Before  the  cards  are  given  over 
to  the  collectors,  the  name  of  each  customer  and  the 
amount  due  is  entered  on  a  book,  which  serves  as  a 
check  on  the  cards  while  they  are  out,  and  a  receipt 
from  the  collectors  for  the  cards  which  they  carry. 
The  collectors  call  on  the  customers  whose  cards  they 
hold,  and  when  they  return  to  the  store  in  the  evening 
they  record  opposite  the  names  in  the  book  mentioned 
what  each  customer  has  done — whether  he  has  paid, 
whether  he  has  promised  to  pay  on  some  future  date, 
or  whether  he  was  not  at  home.  A  clerk  then  takes 
this  book,  the  collector's  and  the  ledger  cards  cor- 
responding to  them.  Where  a  collection  has  been 
made  he  enters  it  on  both  cards  and  files  the  col- 
lector's card  according  to  the  date  of  the  next  pay- 
ment; if  a  customer  has  promised  to  pay,  say  in  ten 
days,  this  fact  will  be  entered  on  the  collector's  card, 
which  will  be  filed  for  March  10th;  if  a  customer  has 
promised  to  call,  this  fact  is  entered  on  the  card  and 


HENRY   MABCUS 


189 


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Fig.  II:     The  Ledger  and  Collector^*  Cards:  both  are  ruled 
similarly  on  the  reverse  side. 

it  is  filed  in  a  pigeonhole  at  the  cashier's  desk  accord- 
ing to  the  day  on  which  he  has  promised  to  call.  The 
cashier  thus  keeps  track  of  these  people  and  finds  out 
whether  they  do  as  they  promise.  The  cards  of  those 
customers  who  were  not  at  home  are  again  taken 
out  by  the  collector  on  the  following  day. 

When  a  payment  is  made  at  the  office,  it  is  at 
once  entered  on  the  ledger  card,  which  is  quickly 
found,  as  it  is  filed  alphabetically.  From  the  dates 
in  red  ink  on  the  ledger  card  it  can  easily  be  deter- 
mined in  what  pigeonhole  of  the  tickler  the  cor- 
responding collector's  card  is,  and  so  this  card  can 
be  looked  up,  the  payment  entered,  and  the  card  filed 
ahead  for  the  next  payment. 

Should  a  new  purchase  be  made  by  a  customer 
while  a  previous  installment  account  is  still  open, 
the  ledger  and  collector's  cards  of  the  old  acoonnt 


190  CREDITS   AND   COLLECTIONS 

are  also  used  for  the  new.  The  date  and  amount  of 
the  cash  down  payment  are  entered  as  before,  the 
amount  of  the  monthly  installment  payments,  entered 
in  red,  are  changed  to  correspond  to  the  increase 
brought  by  the  new  purchase,  and  the  balance  due 
will  also  be  increased.  This  combining  of  payments 
saves  collection  labor  and  confusion. 

When  an  account  is  paid  up,  both  cards  are 
stamped  paid  and  filed  away  alphabetically.  Thus,  a 
customer  who  has  had  twenty  or  thirty  accounts  with 
this  firm  will  in  all  probability  have  twenty  or  thirty 
old  ledger  cards  and  they  will  be  all  filed  together,  so 
that  his  record  can  be  looked  up  at  any  time — a 
valuable  asset  in  a  business  of  this  kind  with  thou- 
sands of  customers  and  information  regarding  them 
hard  to  obtain. 

The  value  of  the  card  ledger  for  this  kind  of  busi- 
ness cannot  be  overemphasized.  Whatever  may  be 
the  advantages  in  other  kinds  of  accounting,  for  in- 
stallment accounts  it  seems  almost  indispensable. 
With  so  many  small  amounts,  requiring  so  many 
small  and  frequent  entries,  the  keeping  of  accounts 
in  the  old-time  heavy  tome,  unwieldy  and  cumber- 
some, would  more  than  double  the  oflQce  work.  The 
inevitable  scattering  of  different  accounts  of  the  same 
customer  throughout  various  volumes  would  render  it 
impossible  to  study  them  all  together,  and  would  thus 
destroy  the  most  valuable  source  of  information  of  the 
installment  house.  The  ledger  cards  also  serve  as  an 
alphabetical  index  of  all  customers,  an  immense  sav- 
ing of  time  and  money  which  would  be  required  to 
keep  so  necessary  a  record. 


CHAPTER  XVII 

A  CREDIT  AND  COLLECTION  SYSTEM  FOR  A 
RETAIL  HOUSE. 

By  C.  C.  parsons 
Of  The  Shaw-  Walker  Company 

In  this  chapter  will  be  given  a  description  of 
merely  those  elements  of  a  credit  and  collection  sys- 
tem which  might  be  called  mechanical.  That  is,  that 
work  in  a  credit  department  which  is  entrusted 
strictly  to  mechanical  appliances. 

In  the  handling  of  an  individual  credit  in  a 
retail,  house  the  opening  of  the  account  is  the  first 
process.  Usually  a  person  wishing  to  open  an  ac- 
count makes  an  application  on  the  proper  form 
(Figure  I),  which  is  supplied  by  the  firm.  On  this 
card  is  given  the  name,  residence,  business  and  busi- 
ness address  of  the  applicant,  as  well  as  other  informa- 
tion, such  as  amount  of  property,  regular  income, 
size  of  bank  account,  and  other  details,  varying  with 
the  policy  of  the  credit  department.  As  soon  as  this 
application  reaches  the  credit  man  he  is  in  a  position 
to  look  up  all  of  the  references  and  determine  whether 
the  applicant  is  deserving  of  credit.  The  information 
which  he  will  receive  will  be  either  in  the  form  of 
reports  from  mercantile  agencies  or  from  his  own  re- 
porters, or  letters  from  the  applicant's  references. 

All  this  information,  for  its  proper  filing  and 
preservation,  needs  two  oflSce  appliances.  A  card  in- 
dex of  all  applications  received  is  the  first  requisite. 

191 


192  CREDITS  AND   COLLECTIONS 

Each  card  (Figure  11)  should  give  the  name,  resi- 
dence, business  address  or  place  of  work,  general 
reputation,  the  file  number  (under  which  detailed 
information  is  filed)  and  the  names  and  addresses  of 
_  the  different  persons  who  have  guaran- 

Keep  teed  the  account,  and  also  a  place  for 

Informed  such  notation  as  a  credit  man  wishes  to 
make  regarding  the  value  and  status  of  each  ap- 
plicant. These  cards  are,  of  course,  arranged  in  filing 
cabinets  alphabetically.  The  filing  numbers  will  refer 
to  a  vertical  file  where  is  kept,  in  folders — one  folder 
for  each  applicant — all  the  Information  pertaining 
to  the  applicant  and,  when  he  becomes  a  customer, 
to  his  account.  The  customer  should  then  be  notified 
on  a  regular  blank  that  a  credit  account  has  been 
opened  with  him. 

Orders  come  in  to  a  retail  house  either  through 
direct  buying  over  the  counter  or  through  the  mail. 
The  volume  of  the  latter  is  comparatively  small  and 
their  treatment  is  the  same  as  in  the  case  of  a 
wholesale  house.  That  is,  the  credit  man  or  his  as- 
sistant passes  upon  the  order,  basing  his  judgment 
upon  the  information  contained  in  the  customer's 
folder  and  in  his  ledger  account.  The  orders,  when 
approved,  are  turned  over  to  the  order  department. 

Orders  coming  in  over  the  counter  should  all  be 
passed  upon  by  some  responsible  person  before  the 
goods  leave  the  house.  In  case  the  goods  are  to  be 
delivered,  this  becomes  very  easy,  inasmuch  as  orders 
can  be  passed  upon  either  by  the  credit  man  or  the 
cashier  in  a  small  house,  or,  as  is  necessary  in  a  large 
Btore,  by  a  number  of  passers  especially  assigned  to 
this  work,  who  carry  a  book  or  card  index  bearing 


0.  C.  PARSONS  193 


CREDIT  APf^LlCATlON    BLANK 

t^iME  _^I5.9^^i:^lA=2^:\£ 


RESWENCE 


eUsm£s&  ADDRESS 


BUS)N£SS ^^^^<>^^^<^- 


INCOME  ^ — . ...  ...  ...  ,  . — -^— 

PROPERTY  _Hl>^'^  .  Uf-^WOiJA^^,  H^^'l    ^^^li^XM4    ftA^- 


Fig.  2:    The  Credit  Application  Blank  which  the  credit  man  makea 

out  from  questions  asked  the  applicant. 
the  limit  to  which  they  can  extend  credit  to  each 
customer.  If  a  sale  is  made  to  a  customer  whose 
limit  has  not  yet  been  reached,  it  is  approved  by 
these  passers  and  goes  directly  to  the  bookkeeping 
department,  after  the  order  is  filled.  If  a  customer's 
account  is  such  that  the  passers  cannot  approve  a 
sale,  it  should  be  sent  in  to  the  credit  office,  where  it 
will  receive  more  intelligent  consideration. 

In  a  store  of  any  considerable  size  it  is  necessary 
to  keep  up  the  billing  on  open  accounts  day  by  day, 
otherwise  the  accumulation  of  work  to  be  done  by 
the  billing  clerks  at  the  end  of  the  month  would  be 
so  large  that  bills  could  not  be  gotten  out  promptly. 
On  account  of  the  multitude  of  small  purchases  which 
each  customer  is  likely  to  make,  a  saving  of  the 
double  time  of  billing  and  posting  is  advisable.  This 
can  be  accomplished  by  means  of  a  combination 
statement  and  ledger  sheet,  made  out  at  one  time 


IM  CREDITS  AND  COLLECTIONS 


BosiNtss AODfttss  S\  ^EgO^^tSHf  BusiNess  li^*tg<M4a^ii<tcoiwE  i<lyfc^^v»^ 


jlESIDENCE   /Ife  "^  ^      ^^AdJLOMc^    ftArtA>AU  > 


<\   <\(ftitfc.  %lalg  %imxr:  Q  ^t'>M  v^auAfcsA 


riLt  Number  }ly^^       cRtorruwiT    S'OSy 


SiSMdl  UHstrlUteMAJM  RdAvjAO 


^t^r.  ZZ;    J.  card  out  of  the  alphabetical  index  of  all  credit  custom- 
era;  a  brief  of  all  information  concerning  this  person. 

in  duplicate  on  loose  leaves,  as  shown  in  Figure 
III.  These  two  sheets  are  kept  together  during 
the  month.  Each  morning,  as  the  slips  of  the  preced- 
ing day's  sales  come  to  the  bookkeeping  department, 
they  are  posted  to  these  sheets,  preferably  on  a  flat- 
bed typewriter,  although  a  cylinder  niachine  is  often 
used.  These  charges  are  entered  in  black  ink.  The 
moneys  remitted  by  the  customer  for  past  bills  are 
posted  to  date  in  the  same  way,  but  in  red  ink.  The 
balances  may  be  struck  daily  or  may  be  taken  only 
at  the  end  of  the  month.  At  the  end  of  the  month  the 
difference  between  the  credits  entered  and  the  debits 
entered  shows  the  amount  due  from  the  customer. 
Before  the  bill  is  sent  out  a  new  set  of  duplicate 
sheets  is  made  out  and  the  total  debit  of  the  preced- 
ing month  is  the  first  thing  entered  on  the  new  sheets, 
thus  making  the  new  bill  really  a  ledger  account  of 
past  transactions. 

In  order  that  the  credit  department  may  be  in- 
formed concerning  the  conditions  of  accounts  two 
things  are  necessary.  In  the  first  place,  it  is  advisable 
that  all  letters  referring  to  orders,  complaints  re- 
garding orders,  and  all  letters  containing  remittances, 


0.  O.  PARSONS 


195 


should  go  to  the  credit  department  immediately,  so 

that  its  officials  may  keep  in  the  closest  possible  touch 

_  .  .  with  customers  and  their  accounts.  Re- 
Keepmg  m 

Touch  witlt  mittances  are  passed  from  the  credit  man 
Customers  |^  ^j^^  cashier,  who  enters  them  on  his 
cash  book  and  then  passes  the  letters  over  to  the 
bookkeeping  department,  where,  as  has  been  said, 
they  are  entered  in  red  ink  on  the  ledger  bills.  In 
case  a  remittance  balances  an  account,  this  statement 
becomes  a  receipt  in  full  and  is  sent  out  to  the 
customer  at  once.  If  it  is  only  a  payment  on  account 
the  statement  is  held  until  the  end  of  the  month. 

The  second  means  for  keeping  the  credit  depart- 
ment in  touch  with  accounts  is  to  enter  at  the  top 
of  each  ledger  sheet  the  credit  limit  of  the  customer. 
In  case  an  account  at  any  time  runs  over  the  limit, 


I  MOnTKLV  STATEMENT 


fe^^;  '    HENRY  BROWN  &  CO 


fOwCi-T  cr 


CK  CAao   111 


Fig.  Ill:      The  duplicate  ledger  theet  and  Mil  head. 


196  CREDITS  AND   COLLECTIONS 

the  posting  clerk  at  once  notifies  the  credit  depart- 
ment, which  then  takes  the  course  that  the  policy 
of  the  house  or  the  character  of  the  customer  may 
dictate. 

At  the  end  of  the  month  the  bill  sheets  are 
sent  out  to  the  debtors;  the  ledger  sheets  are  filed 
alphabetically,  either  in  binders  or  in  a  vertical  file. 
The  latter  is  perhaps  preferable,  since  each  customer 
can  be  given  a  folder  in  this  file,  and  all  his  ledger 
sheets,  which  are  really  nothing  but  duplicate  bills, 
can  be  filed  in  this  one  place  month  by  month. 

This  has  been  found  to  be  a  most  successful,  ac- 
curate and  time-saving  system  of  keeping  retail  ac- 
counts; the  extra  work  of  making  out  statements  is 
done  away  with,  since  the  ledger  posting  would  have 
to  be  done  anyway,  the  statements  are  ready  to  go  out 
on  the  first  day  of  the  month,  and  there  can  be  no 
errors,  inasmuch  as  the  statements  are  an  exact 
duplicate  of  the  ledger  page. 

To  recapitulate,  this  system  will  then  consist  of 
the  following: 

An  alphabetical  card  index  of  all  customers  and 
applicants,  a  numerical  file  containing  in  folders  full 
information  regarding  customers  and  their  accounts, 
a  loose  leaf  billing  and  ledger  system  never  more  than 
a  day  behind  in  the  records,  an  automatic  arrange- 
ment whereby  the  credit  man  is  notified  as  soon  as  an 
account  becomes  dangerous  or  exceeds  a  given  limit 
and  whereby  every  employe  in  the  store  with  credit 
functions  is  notified  of  this  fact. 


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